Overview Retail strategy has several components in a process. Begins with a “mission statement” Markets are selected based on their attractiveness. Profits are due to sustainable advantages.

Identifying Market Opportunities June 25, 2002

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 Steps in the Strategic Retail Planning Process

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

Criteria For Selecting A Target Market Attractiveness -- Large, Growing, Little Competition ===>Profitable Consistent with Your Competitive Advantages Actionability: Will respond as a segment to your format.

Mission Statement and the Household “Generic markets” for retailers: Products lie on a “goods and services” continuum: Recognition that households have basic needs for products on this continuum.

Can You Develop a Sustainable Competitive Advantage by: Eliminating a line of merchandise? Offering the lowest prices? Eliminating less profitable locations? Increasing your level of advertising? Discontinuing services?

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

Michael Porter’s “Five Forces” Models Bargaining Power of Suppliers Bargaining Power of Customers Threat of Entry of New Firms Threat of Substitutes Rivalry of Competitors “Attractiveness” is associated with profitability, not ease of entry.

Bargaining Power of Suppliers Few, powerful suppliers Several, highly competitive suppliers

Threat of Entry Markets that are difficult—high barriers to entry—remain less competitive, and remain “attractive.” Geographic markets can become over- stored due to low barriers to entry, leading to “unattractive” price competition.

Competitive Rivalry Price competition Nonprice competition

Threat of Substitutes What is the basic household need? How do the service output levels affect substitutability? How does decreasing services provided affect competition?

Sources of Competitive Advantage More Sustainable Location Customer Loyalty Low Cost Supply Chain Management Information Systems Exclusive Merchandise Buying Power Customer Service Committed Employees Less Sustainable Better Computers More Employees More Merchandise Greater Assortments Lower Prices More Advertising More Promotions Cleaner Stores

Sustainability of Retailing Functions: Managing effective breadth and depth of assortment. Minimizing assortment to minimize stock-outs. Information through experienced sales people. Economies of the chain. Extending credit. Aligning with specific vendors for exclusive displays. Using web-pages and point-of- purchase displays to provide customer information. Providing services that cannot be easily provided without spatial convenience. Providing convenience through large-store, one-stop shopping experience.

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

Vendor Relationships Low Cost - Efficiency Through Coordination –Electronic Data Interchange (EDI) –Functions Performed By Most Efficient Party Exclusivity Difficult to view this as a long-term sustainable advantage without guaranteeing vendor’s commitment.

Challenges to High Quality Customer Service Difficult to achieve People are not machines -- Inconsistent Retail sales associates at bottom of labor pool Organizational culture is difficult to maintain with system growth. Shoppers are showing that they are willing to accept less customer service in the shopping process.

Regulatory Environment Sales taxes on all retail e-commerce Regulation of distribution Maximum resale price maintenance Enforcement of Robinson-Patman Act Third-party payers, such as insurance and government entities. Restrictions on store size