RETAILING MANAGEMENT RETAILING MANAGEMENT 5th Edition

Retail Marketing Strategy Chapter 5 Retail Marketing Strategy McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Retailing Strategy Human Resource Management Chapter 9 Retail Locations Chapters 7,8 Retail Market Strategy Chapter 5 Financial Strategy Chapter 6 Information and Distribution Systems Chapter 10 Customer Relationship Management Chapter 11

“Strategy” Is Over Used Retailers Talk About A Lot of Different “Strategies” Sales Strategy Advertising Strategy Merchandise Strategy Location Strategy Strategy Is Not Just Another Term for A Management Decision

Strategic vs. Tactical Decisions Strategic Tactical Direction Implementation Strategy statement Annual plan Broad Specific, detailed Unstructured Structured Problem solving Problem solving Creativity Analytical External focus Internal focus Irregular Regular Long-term Short-term Difficult to evaluate Easy to evaluate Note: Success Comes for Having a Good Strategy and Executing It Well

Elements in Retail Strategy Target Market Customer Needs Retail Format Method for Satisfying Needs Bases for Building Sustainable Competitive Advantage Defending Position Against Competitors

Chico’s Strategy Target Market Woman 35 to 55 Who Want Comfortable, Casual, But Stylish Apparel Retail Format Specialty Apparel Stores in Malls and Strip Centers Selling Private Label, Coordinated Outfits Bases for Building Sustainable Competitive Advantage Unique Merchandise Sized 0,1,2,3

Analyzing McDonalds’ Retail Strategy What Is McDonalds’: -Target market? -Retail offering (format)? -Bases for competitive advantage? What Threats Might McDonald’s Face in the Future?

Examples of Retail Strategies Starbucks Kohls Restoration Hardware Ukrop’s What is the target market, retail offering, and source of competitive advantage for each retailer?

Strategy for Looking for a Job Determine Your Target Market Area of Country Type of Company Type of Position Assess and Exploit Your Competitive Advantage Unique Skills, Experience, Knowledge

Why Does a Retailer Need to Focus on a Specific Target Market Why Does a Retailer Need to Focus on a Specific Target Market? Why Not Sell to Everyone?

Retail Market Opportunities for Women’s Apparel

Methods for Segmenting Markets Buying Situations Benefits Sought Geographic Lifestyle, Psychographics Demographics

Criteria For Selecting A Target Market Attractiveness -- Large, Growing, Little Competition More Profits Consistent with Your Competitive Advantages

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?

Internal and External Bases for Competitive Advantage Retail Firm Low Cost Large Size Efficient Distribution, Operations Unique Knowledge Loyal Employees Sources of Capital Vendors, Suppliers Customers

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

Loyalty What does loyalty mean? Is It the same as liking a store? …Going to the store frequently?

Approaches for Building Customer Loyalty Unique Positioning Customer Service Information About Customers (Database Retailing) Unique Merchandise Location

Example of Positioning

Basis of Loyalty, Commitment Costs Location Frequent Shopper Programs Unique Merchandise Mental, Emotional Attachment

Creating Store Loyalty Mental and Emotional Attachments Elements in a Strong Brand Top of the Mind Awareness Associations with Brand/Store Name Methods Used to Develop a Strong Brand Massive Exposure Symbols to Reinforce Image Consistent Positioning Creating Strong Associations Limited Brand Extensions

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

Critical Tradeoff In Developing Strategic Advantage Focus Leads to Developing A Competitive Advantage But Focus Reduces Flexibility Low Cost, Consistent Image, Vendor Relationships Reduces Flexibility Similar to Dating and Marriage – Commitment to a Relationship (Vendor) Reduces Flexibility

Growth Opportunities Market Penetration Market Expansion Retail Format Development Diversification Related vs. Unrelated

Growth Opportunities

International Growth Opportunities Europe China Mexico, Latin America Japan

Key to Success in Global Retailing Domestic market leadership – strong base Exploiting core competencies – competitive advantage Low cost - Wal-mart, Carrefour Fashion Reputation - The Gap, Zara, H&M Category dominance - Toys ‘R’ Us, Office Depot Unique Image, Brand – Disney, IKEA, Starbucks Adaptability Global Culture Long-term commitment

International Market Entry Strategies Direct Investment Joint Ventures Strategic Alliances Franchising

Steps 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

Elements in a Market Analysis MARKET FACTORS COMPETITIVE FACTORS ENVIRONMENTAL FACTORS ANALYSIS OF STRENGTHS & WEAKNESSES Barriers to entry Bargaining power of vendors Competitive rivalry Threat of superior new formats Technology Economic Regulatory Social Management capabilities Financial resources Locations Operations Merchandise Store Management Customer loyalty Size Growth Seasonality Business cycles

Questions for Analyzing the Environment 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

Bargaining Power of Vendors Threat of Substitution Porter’s Five Forces Barriers to Entry Bargaining Power of Vendors Competitive Rivalry Large Customers Threat of Substitution

Strengths and Weaknesses Analysis Management Capability: Capabilities and experience of top management Depth of Management--capabilities of middle management Management’s commitment to firm Financial Resources: Cash flow from existing business Ability to raise debt or equity financing Operations: Overhead cost structure Quality of operating systems Distribution capabilities Management information systems Loss prevention systems Inventory control system Store Management Capabilities Management capabilities Quality of sales associates Commitment of sales associates to firm Locations Merchandising Capabilities: Knowledge and skills of buyers Relationships with vendors Capabilities in developing private capabilities Customers Loyalty of customers

Illustration of the Strategic Retail Planning Process Kelly Bradford – Owner of Gifts To Go Two Store Chain in Chicago Target Market – Upper Income Men and Women Looking for Gifts between $50 and $500 Strong Customer Loyalty Based on Knowing What Customers Want, Providing Good Customer Service Low Turnover Among Associates

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.” Define growth opportunities will and won’t consider Indicates objective of company

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 (continued) 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

Growth Opportunities for Gifts to Go 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 (continued) 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

Evaluating Growth Opportunities for Gifts to Go Market Attractiveness Market Penetration Increase size of present stores (low) Open additional gifts stores in Chicago area (medium) Market Expansion Open gift stores outside Chicago area – new geographic segment (medium) Sell lower priced gifts in present stores – new benefit segment (medium)

Evaluating Growth Opportunities for Gifts to Go (continued) Market Attractiveness Retail Format Development Sell non-gift merchandise to same customers in present or new stores (High) Sell similar gifts to same customers through an electronic channel (High) Diversification Manufacture craft gifts (High) Open an apparel store targeting teenagers (High) Open a category killer store selling a broader assortment of gifts (High)

Evaluating Growth Opportunities for Gifts to Go Competitive Position Market Penetration Increase size of present stores (High) Open additional gifts stores in Chicago area (Medium) Market Expansion Open gift stores outside Chicago area (Low) Sell lower priced gifts in present stores (low)

Evaluating Growth Opportunities for Gifts to Go (continued) Competitive Position Retail Format Development Sell non-gift merchandise to same customers in present or new stores (Low) Sell similar gifts to same customers through an electronic channel (Medium) Diversification Manufacture craft gifts (Low) Open an apparel store targeting teenagers (Low) Open a category killer store selling a broader assortment of gifts (Low)

Market Attractiveness Aggressive investment Market Attractiveness/Competitive Position Matrix Market Attractiveness Competitive Position High Low Medium Maximum investment Consolidate position Invest to challenge leader Opportunities investment Build strength or exit Selective investment Build on strengths Cautious investment Harvest or divest Protect position Manage for cash generation Harvest or divest Harvest or divest Aggressive investment Minimal investment

Steps in Using Market Attractiveness - Competitive Position Matrix Define strategic opportunities Identify market attractiveness and competitive position factors Assign weight based on importance of factors Rate opportunities on market attractiveness and competitive position Calculate scores and evaluate opportunities

Characteristics of International Markets U.S. Germany Japan Population (Millions) 266 82 126 Business Climate 3 10 24 Logistical Infrastructure Exc. Good Avg.

Attractiveness Ratings for International Growth Opportunities

Competitive Position in International Growth Opportunities

Evaluation of International Growth Opportunities

Market Size (GDP Billions) Risk and Rewards in Latin America: Country Risk Assessment Short-Term Risk Long-Term Risk 400 350 300 250 200 150 100 50 0 Brazil Mexico Argentina Market Size (GDP Billions) Colombia Venezuela Chile Peru Low Medium High RISK Source: Coopers & Lybrand Analysis, “Global Retailing: Assignment Latin America,” Chain Store Age Executive, April 1996, seciton 2, p. 4.

Evaluation of Retail Market Opportunities in European Community High Low UNITED KINGDOM NETHERLANDS Open Restricted MARKETS SPAIN ITALY FRANCE GERMANY BELGIUM PORTUGAL LUXEMBOURG IRELAND GREECE DENMARK GROWTH

Market Attractiveness Ratings for Growth Opportunities in Merchandise Categories Weight Market size Growth Vendor power Competitive intensity Social trends Score Junior’s (2) Men’s (3) Children’s (4) Furniture (5) Cons. Elec. (6) Soft Home (7) Women’s(1) Factors 20 15 25 10 9 4 5 540 7 3 445 6 720 2 505 485 8 1 435 805

Competitive Position Ratings in Merchandise Categories Weight Location Vendor relationship Costs Skills of buyers Image with customer Score Junior’s (2) Men’s (3) Children’s (4) Furniture (5) Cons. Elec. (6) Soft Home (7) Women’s(1) Factors 20 25 10 100 9 8 6 800 7 785 5 560 655 4 3 415 2 1 225 675

Market Attractiveness Evaluation of Merchandise Category Opportunities Market Attractiveness High Low Medium Soft home Men’s clothing Women’s clothing Children’s clothing Consumer electronics 1,000 667 333 Junior’s clothing Furniture 1,000