2Retailing Strategy Human Resource Management Chapter 9 Retail Locations Chapters 7,8Retail Market Strategy Chapter 5Financial Strategy Chapter 6Information and Distribution Systems Chapter 10Customer Relationship Management Chapter 11
3Questions What is a retailing strategy? How can a retailer build a sustainable competitive advantage?What steps do retailers go through to develop a strategy?What different strategic growth opportunities can retailers pursue?What retailers are best positioned to become global retailers?
4More attention to long-term strategic planning than ever before Due to the emergence ofNew competitorsNew formatsNew technologiesShifts in customer needs
6Analyzing McDonalds’ Retail Strategy Target market?Retail offering (format)?Bases for competitive advantage?The McGraw-Hill Companies, Inc./John Flournoy, photographerWhat Threats Might McDonald’s Face in the Future?
7Examples of Retail Strategies Steve & Barry’sChico’sCurvesMagazine LuizaStarbucksWhat is the target market, retail offering, and source of competitive advantage for each retailer?
8Steven & Barry’s Target Market Value and quality conscious consumers for university sportswearRetail Formatstores are in middle-market mallsextreme low prices, quality private-label merchandise, upscale surroundings (“Old Navy on steroids”)Bases for Building Sustainable Competitive AdvantageNo advertisingAggressive incentives from mall ownersCreative approaches to working with vendors
9Chico’s Strategy Target Market Woman 35 to 55 Who Want Comfortable, Casual, But Stylish ApparelRetail FormatSpecialty Apparel Stores in Malls and Strip Centers Selling Private Label, Coordinated OutfitsBases for Building Sustainable Competitive AdvantageUnique Merchandise Sized 0,1,2,3
10Target MarketWhy Does a Retailer Need to Focus on a Specific Target Market? Why Not Sell to Everyone?
11Target market and retail format: Retail Market Opportunities for Women’s Apparel
12If TARGET decides to focus on a limited set of markets for women’s apparel, which should it pursue? What should be the retail strategy for that target market?
13Criteria For Selecting A Target Market Attractiveness -- Large, Growing, Little Competition More ProfitsConsistent with Your Competitive AdvantagesRim Light/PhotoLink/Getty Images
14Human Resource Management Distribution and Information Systems Opportunities for retailers to develop sustainable competitive advantagesCustomer LoyaltyLocationHuman Resource ManagementDistribution and Information SystemsUnique MerchandiseVendor RelationsCustomer ServicePhotoLink/Getty Images
15Can 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?
16Sources of Competitive Advantage More SustainableLocationCustomer LoyaltyCustomer ServiceExclusive MerchandiseLow Cost Supply Chain ManagementInformation SystemsBuying Power with VendorsCommitted EmployeesLess SustainableBetter ComputersMore EmployeesMore MerchandiseGreater AssortmentsLower PricesMore AdvertisingMore PromotionsCleaner Stores
17Internal and External Bases for Competitive Advantage Retail FirmLow CostLarge SizeEfficientDistribution,OperationsUniqueKnowledgeLoyal EmployeesSources ofCapitalVendors, SuppliersCustomers
18Loyalty What does loyalty mean? Is It the same as liking a store? …Going to the store frequently?
19Customer Loyalty More than simply liking one retailer over another Customers will be reluctant to patronize competitive retailersRetailers build loyalty by:Developing a strong brand for the store or store brandsDeveloping clear and precise positioning strategiesCreating an emotional attachment with customers through loyalty programs
20Retail BrandingStores use brand (store’s name and store brands – private label brands) to build customer loyaltyRetail brandCan create an emotional tie with customers that build their trust and loyaltyFacilitates store loyalty because it stands for a predictable level of quality
21Loyalty ProgramsPart of an overall Customer Relationship Management (CRM) programPurchase behaviors of members of loyalty programsAre identified when they buy because they use some type of loyalty cardSaved in Data WarehouseWhat they buyWhen they buyHow much they buyHow often they buyHow much they spendWhat channel they useDevelop personalized marketing effort to them
22Approaches for Building Customer Loyalty Unique PositioningLocationCustomer ServiceInformation About Customers (Database)Unique Merchandise
24Location What are the three most important things in retailing? “location, location, location”Location is a competitive advantageA high density of Starbucks storesCreates a top-of-mind awarenessmakes it very difficult for a competitor to enter a market and find a good locations
25Human Resources“Employees are key to build a sustainable competitive advantage”Strategies for Recruiting and Retaining Talented EmployeesEmployee BrandingDevelop positive organizational culture
26Distribution and Info Systems Flow of InformationBy decreasing costs here, the is more money available to invest in:VendorDistribution Center-Better services-Increase in breadth and depth-Decrease in pricesStore
27Unique Merchandise: Private Labels Sears’ Kenmore -- appliancesFederated’s Inc. – fine apparelKmart’s Martha Stewart -- homeJCPenney’s Arizona -- jeansRob Melnychuk/Getty ImagesJules Frazier/Getty ImagesJacobs Stock Photography/Getty Images
28Vendor Relationships Low Cost - Efficiency Through Coordination Electronic Data Interchange (EDI)Collaborative Planning and Forecasting to Reduce Inventory and Distribution CostsExclusive Sale of Desirable BrandsSpecial TreatmentEarly Delivery of New StylesShipment of Scare Merchandise
29High Quality Customer Service Difficult to AchievePeople Are Not Machines -- InconsistentRetail Sales Associates At Bottom of Labor PoolGoes Beyond Hiring Good People at High Wages and Training Them -- Organizational Culture
30Critical Tradeoff In Developing Strategic Advantage Focus Leads to DevelopingA Competitive AdvantageButFocus Reduces FlexibilityLow Cost, Consistent Image, Vendor Relationships Reduces FlexibilitySimilar to Dating and Marriage – Commitment to a Relationship (Vendor) Reduces Flexibility
31Growth Strategies Market Penetration Market Expansion Retail Format DevelopmentDiversificationRelated vs. UnrelatedRyan McVay/Getty Images
33Market PenetrationAttract customers from target market – Walgreens “on every corner”Get current customer to visit store more often or buy on each visitCross Selling – sales associates in one department sell complimentary merchandise from other departmentsExample: Manicurist sells services plus hand lotion or nail polishExample: Salesperson sells leaf blower directs customer to electricaldepartment to purchase a 100 foot extension cord.
34Market ExpansionMarket expansion growth opportunity involves using the existing retail format in new market segmentsDunkin’ Donuts – new stores (and at gas stations) outside northeasternAbercrombie & Fitch (for college students) opens lower-priced chain Hollister Co. for highschoolers
35Retail Format Development Develops a new retail format with a different retail mix for the same target marketMulti-channel retailingUK based TESCO:Tesco Express: small stores located close to where customers live and workTesco Metro: bring convenience to city center location by specializing in ready-to-eat mealsTesco Superstores: traditional storesTesco Extra: one-stop destination with the widest range of food and non-food products
36DiversificationIntroduces a new retail format toward a market segment that is not currently served by the retailerRelated diversificationUnrelated diversificationVertical integration into wholesaling or manufacturing
37Global Growth Opportunities Who Is Successful and Who Isn’t?Specialty store retailers with strong brand and unique merchandise?McDonald’sStarbucksZaraH & MDiscount and food retailers with deep assortments and low prices?Wal-MartCarrefourRoyal AholdMetro AGSteve Cole/Getty Images
38IKEA Operates 254 stores in 35 countries Unique, well-designed, functional furniture at low prices for consumers who have sophisticated tastes but have no intention to spend lots of money“You do our part. We do our part. Together, we save money.”
39Why Do Category Killers and Supercenters Succeed Globally? Developed operating expensesScale economies for buying merchandise globallyUnique systems and standardization formats that facilitate control over multiple storesUnderstand that consumers are willing to forego service for lower pricesRyan McVay/Getty Images
40Key to Success in Global Retailing Globally sustainable competitive advantageLow cost, efficient operations - Wal-Mart, CarrefourStrong private label brands: Starbucks, KFCFashion Reputation - The Gap, Zara, H&MCategory dominance – Best Buy, IKEA, Toys R UsAdaptabilityGlobal CultureFinancial Resources
41Evaluating Global Growth Opportunities Rankings are based on weighted score using growth (55%),risk (25%), andmarket size (20%)
43Evaluating Global Growth Opportunities Consider challenges and how to overcome themChinaIncreasing operating costsLack of managerial talentUnderdeveloped and inefficient supply chainIndiaPrefers small family-owned storesRestricts foreign investment
44International Market Entry Strategies Direct InvestmentJoint VenturesStrategic AlliancesFranchisingProfit and RiskLawrence Lawry/Getty Images
45Stages in the Strategic Retail Planning Process 1. Define the business mission2. Conduct a situation audit: Market attractiveness analysis Competitor analysis Self-analysis3. Identify strategic opportunities5. Establish specific objectives and allocate resources7. Evaluate performance and make adjustments6. Develop a retail mix to implement strategy4. Evaluate strategic alternatives
46Elements in a Situation Audit MARKET FACTORSCOMPETITIVE FACTORSENVIRONMENTAL FACTORSANALYSIS OF STRENGTHS & WEAKNESSESBarriers to entry Bargaining power of vendors Competitive rivalry Threat of superior new formatsTechnology Economic Regulatory SocialSize Growth Seasonality Business cyclesManagement capabilities Financial resources Locations Operations Merchandise Store Management Customer loyalty
47Market FactorsMarket size – large markets attractive to large retail firmsGrowth – typically more attractive than mature or decliningSeasonality – can be an issue as resources are necessary during peak season onlyBusiness cycles – retail markets can be affected by economic conditions – military base towns
48Competitive Factors Barriers to entry Bargaining power of vendors Scale economies of big box retailersService and unique, high-end products of small retailersBargaining power of vendorsMarkets are less attractive when only a few vendors control the merchandise sold in itCompetitive rivalryDefines the frequency and intensity of reactions to actions undertaken by competitorsConditions leading to intense rivalry: a large number of same size retailers, slow growth, high fixed costs, a lack of perceived differences between competing retailers
49Questions for Analyzing the Environment New developments or changes -- technologies, regulations, social factors, economic conditionsLikelihood changes will occurKey factors determining changeImpact of change on retail market firm, competitors
50Strengths and Weaknesses Analysis Management Capability: Capabilities and experience of top management Depth of Management--capabilities of middle management Management’s commitment to firmFinancial Resources: Cash flow from existing business Ability to raise debt or equity financingOperations: Overhead cost structure Quality of operating systems Distribution capabilities Management information systems Loss prevention systems Inventory control systemMerchandising Capabilities: Knowledge and skills of buyers Relationships with vendors Capabilities in developing private capabilitiesStore Management Capabilities Management capabilities Quality of sales associates Commitment of sales associates to firmLocationsCustomers Loyalty of customers
51Performing a Self-Analysis At what is our company good?In which of these areas is our company better than our competitors?In which of theses areas does out company’s unique capabilities provide a sustainable advantage or a basis for developing one?Stockbyte/Punchstock Images
52Illustration of the Strategic Retail Planning Process Kelly Bradford – Owner of Gifts To GoTwo Store Chain in ChicagoTarget Market – Upper Income Men and Women Looking for Gifts between $50 and $500Strong Customer Loyalty Based on Knowing What Customers Want, Providing Good Customer ServiceLow Turnover Among Associates
53Mission 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.”Define growth opportunities will and won’t considerIndicates objective of company
54Situation Analysis of Gifts to Go Market FactorsChicago is an attractive market. (+)Relatively expensive gifts are not affected much by the economy. (+)Gifts are highly seasonal. (-)Competitive FactorsMany in area. Primary department stores, craft galleries, catalogs, and Internet retailers (-)Lack of large suppliers, customer (+)Opportunities for differentiation (+)Limited competitive rivalry. (+)
55Situation Analysis of Gifts to Go Environmental FactorsPotential Threat - Development of electronic channel by traditional bricks and mortar retailers (-)Strengths and WeaknessesManagement Capability – LimitedFinancial Resources – GoodOperations – PoorMerchandise Capabilities – GoodStore Management Capabilities – ExcellentLocations – ExcellentCustomer Loyalty – GoodCustomer Database - Good
56Growth Opportunities for Gifts to Go Market PenetrationIncrease size of present storesOpen additional gifts stores in Chicago areaMarket ExpansionOpen gift stores outside Chicago areaSell lower priced gifts in present storesRyan McVay/Getty Images
57Growth Opportunities for Gifts to Go Retail Format DevelopmentSell non-gift merchandise to same customers in present or new storesSell similar gifts to same customers through an electronic channelDiversificationManufacture craft giftsOpen an apparel store targeting teenagersOpen a category killer store selling a broader assortment of gifts
58Evaluating Growth Opportunities for Gifts to Go Market AttractivenessMarket PenetrationIncrease size of present stores (low)Open additional gifts stores in Chicago area (medium)Market ExpansionOpen gift stores outside Chicago area – new geographic segment (medium)Sell lower priced gifts in present stores – new benefit segment (medium)
59Evaluating Growth Opportunities for Gifts to Go (continued) Market AttractivenessRetail Format DevelopmentSell non-gift merchandise to same customers in present or new stores (High)Sell similar gifts to same customers through an electronic channel (High)DiversificationManufacture craft gifts (High)Open an apparel store targeting teenagers (High)Open a category killer store selling a broader assortment of gifts (High)
60Evaluating Growth Opportunities for Gifts to Go Competitive PositionMarket PenetrationIncrease size of present stores (High)Open additional gifts stores in Chicago area (Medium)Market ExpansionOpen gift stores outside Chicago area (Low)Sell lower priced gifts in present stores (low)
61Evaluating Growth Opportunities for Gifts to Go (continued) Competitive PositionRetail Format DevelopmentSell non-gift merchandise to same customers in present or new stores (Low)Sell similar gifts to same customers through an electronic channel (Medium)DiversificationManufacture craft gifts (Low)Open an apparel store targeting teenagers (Low)Open a category killer store selling a broader assortment of gifts (Low)
62Market Attractiveness/Competitive Position Matrix
63Steps in Using Market Attractiveness - Competitive Position Matrix Define strategic opportunitiesIdentify market attractiveness and competitive position factorsAssign weight based on importance of factorsRate opportunities on market attractiveness and competitive positionCalculate scores and evaluate opportunities
64Attractiveness Ratings for International Growth Opportunities
65Competitive Position in International Growth Opportunities