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POST-RECESSION
RETAILING
The recession has brought about a shift in Consumer Behaviour
and spending patterns. The impact of the above will continue
and fundamental changes are expected in 3 key areas:
Increasing dominance of value retailing and cost control
efficiencies related to supply chain and consolidation.
Syndicate Group 5W&RSETA ILDP 2011
Kay RaidooWoolworths, Jeremy Butler-Mr Price, Rudy RichardsEdcon, Michelle NaidooMakro, Rakesh MaharajShoprite Group,Sydwell SerakwanePick n Pay
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Executive SummaryRetailers are faced with the reality of a change in customer behaviour post the recession and in the current low
growth economic environment. Most retailers are asking themselves the question do we conduct business as
usual? This paper will investigate the shift in consumer behaviour and changing spending patterns the
recession has brought about and how this shift in consumer behaviour has impacted both the local and
international retail landscape. Key to this research is to determine the impact the recession had on international
and local retail companies relating to expected changes in the way they deliver value to the business and to the
customer. Areas such as value retailing, consolidation, and structural shifts in Supply Chain will be the
emphasis of this report.
Problem Statement
The recession has brought about a shift in Consumer Behaviour and spending patterns. The impact of
the above will continue and fundamental changes are expected in 3 key areas: Increasing dominance
of value retailing, structural shifts in supply chain and consolidation.
Objective & Aim
In this study, we explore the degree to which the recession has affected the Retail Sector and how this impact
has led to a change in consumer behavior, resulting in Retailers being forced to change their strategies. From a
research perspective, this article may prove valuable as it identifies and describes a theoretical view on Value
Retail, Supply Chain methodology and factors that will lead to Consolidation. This report will also seek toprovide the W&RSETA and its stakeholders with tactical and implementable alternatives and recommendations
on Value Retail strategies, supply chain efficiencies and opportunities to consolidate. These recommendations
are intended to assist retailers in effectively managing the change in consumer behavior and the resultantdemands on business to deliver value.
Research Methodology
A comprehensive literature review was conducted which was supplemented by qualitative and quantitative
interviews. The research was also supported with an international retail in-market immersion. The paper
provides insight into the effects of the recession and changes in consumer behavior. An in-depth analysis of
value retailing, supply chain and consolidation was also conducted
Recommendations and Implementation
The paper provides implementable recommendations supported by a suggested implementation plan. We
propose a compelling Value Retailing Model that extends beyond price, for retailers to consider in sustaining
profitability now and in the future. We also recommend structural shifts in supply chain and consolidation as
drivers to achieve competitive advantage in the market.
In conclusion, it is stated that the change in consumer behavior will remain into the foreseeable future. It is
therefore strongly suggested that Retailers review and adapt their strategies related to Value Retail, SupplyChain and Consolidation, to be successful companies in the ever changing South African retail landscape.
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Table of ContentsExecutive Summary ........................................................ .............................................................. .......................... 1
Introduction ............................................................................................................................................................ 4
Problem Statement .......................................................... ................................................................. ....................... 4
Objective & Aim .................................................................................................................................................... 4
Research Methodology ................................................................................................................. .......................... 5
Literature Review ....................................................... .............................................................. .......................... 5
Qualitative Research ..................................................................................................... ..................................... 5
Quantitative Research ........................................................................................................................................ 5
Research Limitations and Exclusions ......................................................... ........................................................ 6
The Recession and its impact on Retail .......................................................... ........................................................ 6
Table 1 South African Negative GDP Growth ................................................................ ................................... 6
Figure 1 IMF Global Economic GDP Growth & Forecast .......................................................... ....................... 6
The change in consumer behavior .................................................................. ........................................................ 7
Local Customer Findings ...................................................................................... ............................................. 8
Figure 2 Food Retailers ............................................................................................................ .......................... 8
Figure 3 Clothing Retailers .............................................................. .............................................................. .... 8
Figure 4 General Merchandise ......................................................................................... .................................. 8
Value retailing a strategy or must? ..................................................................................................................... .... 9
Figure 5 Customer Confidence........................................................................................................................... 9
Figure 7 Customer Preference ......................................................... ............................................................... .. 10
Figure 6 Service, Price & Quality Preference .......................................................................... ........................ 10
Supply Chain ........................................................................................................................................................ 10
Consolidation ....................................................... ................................................................. .................................. 9
I. Brand Consolidation ................................................................ .............................................................. .... 9
II. Centralized Buying/Procurement System ................................................................ ................................ 10
III. New entrants into the market ........................................................ ...................................................... 10
IV. Centralized Distribution System .............................................................. ........................................... 10
V. Supplier Consolidation ............................................................ .............................................................. .. 10
VI. SKU Consolidation ............................................................. .............................................................. .. 11
Recommendations ................................................................................................................................................ 11
Implementing a Value Compass............................................................................ ........................................... 11
Value Compass as adapted from JC Williams 2011......................................................................................... 11
Implementing or amending a Value Retailing Model ................................ ...................................................... 12
Results ............................................................. ................................................................. ................................ 12
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Process Quality ........................................................... ................................................................. ..................... 13
Price ................................................................................................................................................................. 14
Customer access cost ............................................................. .............................................................. ............. 14
An exceptional supply chain must be tailored to the customer experience youre trying to have. ............... 15
Develop a seamless and efficient supply chain ................................................................ ................................ 15
Figure 8 Supply Chain...................................................................................................................................... 15
Outsourcing warehousing and distribution ............................................................ ........................................... 16
Outsource Management of Supply Chain...................................................................... ................................... 16
Centralised Distribution ................................................................................................................................... 16
Optimize cash and inventory management systems to manage costs ............................................................. .. 16
Monitor Information Systems .......................................................................................................................... 16
Centralized Buying ..................................................... .............................................................. ........................ 17
SKU Consolidation .......................................................................................................................................... 17
Supplier Consolidation .......................................................... .............................................................. ............. 17
Implementation Plan ....................................................... .............................................................. ........................ 18
Conclusion ........................................................... ................................................................. ................................ 19
Appendices ........................................................................................................................................................... 20
Appendix 1 Questionnaire for Business Executives and Analysts ................................................................... 20
Appendices 2 Customer Survey ....................................................................................... ................................ 21
Appendix 2 Customer behaviour trends post-recession .............................................................. ..................... 22
Appendix 3 Executive and Analyst name references ................................................................ ....................... 23
Bibliography ........................................................ ................................................................. ................................ 24
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IntroductionThe 2008-2009 economic recession changed customer and business behaviours, not unlike how a hurricane
reshapes the built and natural environment (Canning, 2010). Retailers are faced with the reality of a change in
customer behaviour post the recession and in the current low growth economic environment, most retailers are
asking themselves the question do we conduct business as usual? To answer this question, the need for new
and innovative ideas and strategies on how best to capture value through their products and services arises. This
research will investigate the shift in consumer behaviour and spending patterns the recession has brought about
and how this shift in consumer behaviour has impacted both the local and international retail landscape. Key to
this research is to determine the impact the recession had on international and local retail companies relating to
expected changes in the way they deliver value to the business and to the customer. Key areas such as value
retailing, consolidation, and structural shifts in supply chain will be the emphasis of this report.
Problem StatementThe recession has brought about a shift in Customer Behaviour and spending patterns. The impact of the above
will continue and fundamental changes are expected in 3 key areas: Increasing dominance of value retailing,
structural shifts in Supply Chain and Consolidation.
Objective & AimRetailers agree that the biggest effect of the global recession on business has been on consumer behaviour.
Many U.S. consumers have completely, and perhaps permanently, altered their buying habits according to
Canning (2010). This means that the biggest challenge for any retailer is to interpret consumer trends and to gain
valuable insight to help future planning (www.worldretailcongress.com). The recessions impact on customer
experience is not going to fade quickly (www.destinationcrm.com). Certain financial and emotional issues will
endure for many years to come. Our future customer, the one who experienced the global financial crisis of
2008/ 2009, will continue to live with residual uncertainty. The threat of unemployment and of a questionable
financial future may ease but will most likely stay in their conscience. In this study, we explore to what degree
the recession has affected the Retail Sector and how this impact has led to a change in consumer behaviour. The
change in Consumer Behaviour forced Retailers to consider changing their strategies. From a research
perspective, this article may prove valuable as it identifies and discusses the following:
The impact of the recession on retail in SA Results in changes to consumer behaviour Theoretical analysis of the importance of value retail How to optimize supply chain efficiency, and Understanding consolidation as an alternative in cost control management.
This report will also aim to prove that customers are demanding more value from retailers and therefore a
proactive response to this change in customer behaviour will result in:
Increased sustainability Enhanced competitiveness Increase in market share Increased relevance.
http://c/Users/Bonita/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/HUPF7O5D/www.worldretailcongress.comhttp://c/Users/Bonita/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/HUPF7O5D/www.worldretailcongress.comhttp://c/Users/Bonita/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/HUPF7O5D/www.worldretailcongress.comhttp://www.destinationcrm.com/http://www.destinationcrm.com/http://www.destinationcrm.com/http://www.destinationcrm.com/http://c/Users/Bonita/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/HUPF7O5D/www.worldretailcongress.com7/30/2019 post recession
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In conclusion this report will also seek to provide the W&RSETA and its stakeholders with tactical and
implementable recommendations on Value Retail strategies, supply chain opportunities and options to
consolidate opportunities.
Research MethodologyLiterature Review
In the exploratory phase of our investigation and research, books and journals such as Competing in Tough
Times by Barry Berman, Reacting to Consumer Trends by Angela Andal -Acion, Marketing out of the
Recession by Nigel F. Piercy andConsumer Spending During Economic Downturn by Television Week
played a vital role in our investigation and defining our problem statement. This literature also played a pivotal
role in our theoretical discussions. Included in this research, is an investigation that was conducted through
augmenting previously done research such as Value in use through service excellence by Sara Sandstrm, Bo
Edvardsson, Per Kristensson and Peter Magnusson, and Consumer Perceptions of Price, Quality and Value by
Valarie A Zeithaml.
Qualitative Research
We also conducted interviews with 15 business executives and 5 industry analysts from leading local and
international companies, a list of which can be found in the Appendix. This provided us with qualitative
information to supplement our overall findings and served the basis of our discussions and recommendations
(refer to Annexure 1). The interviews we conducted with company executives and managers provided us with
their insights on the recession and the impact it had on their businesses. Their responses also revealed their
views on Value Retail, Supply Chain and Consolidation. The responses from the business executives and
analysts helped us draw conclusions on the recessions impact on the retail landscape and the results of thecustomer surveys validated the change in consumer behaviour. Our qualitative research interview approach was
to separate the type of questions asked to retail executives from the questions asked to analysts. In each case,
retail executives provided us with an in-depth microanalysis of their own businesses as well as how they
perceive the current global and local picture. Analysts provided us with a macro opinion of both the economy
and the role the retail sector plays in it.
Our Research scope included the following questions which formed the f oundation of
our investigations
Have retailers changed the way they are doing business? What was the impact the recession had on the retail landscape? Has the Fifa World Cup concealed the true impact of the recession on the South African Economy and
the Retail Landscape?
What was the Recessions impact on consumer behaviour? And did a shift in consumer behaviourreally occur.
And finally, how did the change in consumer behaviour prompt retailers to adapt their strategies withspecific focus on Value Retailing, Supply chain management and Consolidation.
Quantitative Research
We also gained insights into consumer behaviour and preferences through conducting a customer survey (refer
to Appendix 2). Customer surveys that were conducted included a small questionnaire whereby some of the
major retail players were segmented into High-end, Mid-end and Low-end retailers across the Food, Apparel
and General Merchandise sectors, as detailed in the appendices (due to the number of retailers in the Mid-end
sector of the Food retailers the results were slightly over indexed in this category). The survey was sent to a
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group of460 independent customers and the response rate was 97%. The target group in question are all
active shoppers in the retail industry.
Research Limitations and Exclusions
For the purpose of this research, no demographic classifications were made. The list of stores used as part of the
survey was not inclusive of all retailers operating in South Africa. Only well-known retailers with strong brands
were used as part of the survey and these retailers were classified under high end, medium end and low end
retailers. Consumers were not categorised based on race, income, male and female which could impact the
outcome of the results of the survey.
The Recession and its impact on RetailIn 2009, South Africa entered a recession after 17 years of positive GDP growth. Recession is defined as aperiod of temporary economic decline during which trade and industry activity such as production; purchasing,
selling and employment are reduced (www.wikipedia.com). South Africa experienced negative GDP growth as
outlined in the table below.
-6
-4
-2
0
2
4
6
8
10
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Global Economic GDP Growth and Forecast
South Africa Advanced economies Emerging and developing economies World
Figure 1 IMF Global Economic GDP Growth & Forecast
Last Quarter 2008 First Quarter 2009 Second Quarter 2009
-1.80% -7.40% -2.80%
Table 1 South African Negative GDP Growth
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In her recent address to the US Chamber of Commerce, Governor of the South Africa Reserve Bank, Gill
Marcus, noted the following about the current state of the South African economy:-The economy has made a fragile and uneven recovery from the recession, but the future growth prospects will
be affected significantly by global developments. Favourable growth outcomes were achieved in the final
quarter of 2010 and the first quarter of 2011, when annualised growth rates of 4.5 per cent and 4.8 per cent
respectively were recorded. However the second quarter performance had been disappointing, with both the
manufacturing and mining sectors likely to have subtracted from growth. The main driver of growth over the
past 7 quarters has been growth in household consumption expenditure, which has averaged around 5 per cent
since late 2009. However, for some time the Monetary Policy Committee of the Bank has questioned the
sustainability of this consumption growth given the slow pace of employment growth, high levels of consumer
indebtedness, and low levels of bank credit extension as well as negative wealth effects emanating mainly from
the weak housing market. Recent retail sales developments indicate that there may be some slowdown in the
growth of household consumption expenditure. This highlights the need for organisations to be pro-active in
their response to changes in customer behaviour.
The change in consumer behaviorRetailers agree that the biggest effect of the global recession has been on consumer behaviour. Many U.S.
consumers have completely, and perhaps permanently, altered their buying habits according to Canning (2010).This means that the biggest challenge for any retailer is in interpreting consumer trends and gaining invaluable
insight to help future planning (Worldretailcongress.com, 2010). The new market situation is characterised as
the "age of thrift" which has radically changed customer purchase behaviour, and provides an environment
dominated by public scepticism and lack of trust in business and in marketing offers (ingentaconnect.com,
2010).
Thorn Blischok, president of global strategy and innovation for Chicago-based Symphony IRI Group, described
the new retail reality by stating that retailers should expect consumers to continue to make shopping decisionsthrough a "lens of affordability". According to a McKinsey research report it was found that in the past 2
years18 percent of consumer-packaged goods were bought at lower prices. (McKinsey Quarterly, 2010).
According to Adrian Saville the South Africa consumer is still conservative in their spending post-recession.
This is due to the fact that a lot of jobs were lost and these jobs have not been fully recovered. Research done on
consumer strategies in South Africa has shown that consumer behavioural changes brought about through the
recession may very well be permanent and irreversible as people hold onto the lessons learnt and refuse to go
back to their previous spending habits (Fusion Design, 2010). The vast majority of South Africans are
continuing to live like they are in the midst of a recession, according to research by the UCT Unilever Institute
of Strategic marketing (Advantage Magazine, 2011). The study presents compelling evidence that consumerbehaviour has changed substantively, with many respondents reporting substantial changes to their purchasing
patterns. The data reveals that 69% of consumers say they are more cautious with their spending than a year ago,
while 58% say they and their families are financially worse off than in 2010. The trend of consumers following
more frugal lifestyles can be seen in the fact that 55% say they shop in less expensive stores than before, while68% of respondents say they look at several options before making a purchasing decision.
In our qualitative research conducted in the South African retail environment the customer survey findings
supports both the local and international trend on the shift in consumer behaviour post-recession.
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0
100
200
300
400
500
2009 2010 2011
Food
High
Mid
Low
0
20
40
60
80
100
120
2009 2010 2011
General Merchandise
High
Mid
Low
0
50
100
150
200
2009 2010 2011
Clothing
High
Mid
Low
Local Customer Findings
In our local research the customer survey findings supports our initial assumptions on the shift in consumer
behaviour over the period (2009 -2011) due to the recession.
The research findings for General Merchandise
retailers show the following trends:
An overall increase in consumers shopping at highend general merchandise retailers between 2009 and
2010 and a decrease in consumers in 2011 compared
to 2010
An increase in consumers shopping at medium end
retailers from 2009 to 2011
The research findings for Clothing retailers show the
following trends:
Consumers shopping at high end retailers increased
in between 2009 and 2010
A decrease in consumers shopping at high end
retailers from 2010 to 2011 An overall decrease in consumers shopping at
medium end retailers from 2009 to 2011
And overwhelming increase in consumers shopping
at low end retailers from 2009 to 2011
The research findings for Food retailers show the
following trends:
A downward trend in consumers shopping at high
end retailers over the period 2009 to 2011
An increase in consumers shopping at mid-endretailers from 2009 to 2010 and a decrease in 2011
An increase in consumers shopping at low end
retailers over the period 2009 to 2011
Figure 2 Food Retailers
Figure 3 Clothing Retailers
Figure 4 General Merchandise
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Value retailing a strategy or must?Value retail is not necessarily based on providing either the lowest cost or the highest level of differentiation. It
involves providing trade-offs of price and differentiation that are desired by the retailers target market (Berman.
B, 2011:2). According to Berman (2011:2), Value is offered through offering only the services customers either
(1) absolutely require as a condition of purchasing your goods or (2) are willing to pay extra for because they
view these services as meaningful. Successful companies typically start with a deep understanding of customer
needs in a segment and translate these needs into a value proposition. Thereafter, businesses develop their
supply chain capability to deliver on their value proposition. According to Billingtonand Nie (2009) many
companies fail to reap the benefit of their value proposition because their supply chain capabilities are
inadequate. Aligning the customer value proposition with the supply chain model is therefore critical to a
companys competitiveness. Value occurs when needs are met through the provision of products, resources or
services, therefore value is an experience. (Billington and Nie 2009) In a recession customers dont stop
buying, they just stop over buying (Armbruster, 2009). In other words a customer rationalizes the need to
purchase and what the purchase is intended for. One CEO of a well-known value retailer concludes that
customers will continue to exercise great caution when making buying decisions and will be drawn to retailers
where they can buy simpler offerings with greater value. Another Business executive states that Retailers today
are spending more time on value strategies than on the traditional fluffy marketing campaigns.
Figure 5 illustrates a study conducted in the US by Booz &
Company with more than 2000 participants where only 9% of
customers intended to spend at pre-recession levels on householdproducts, 10% on cellular phones, 11% on health and
beauty products and 18% on apparel, clothing and shoes as
of 2011. Close to two-thirds of customers (64%) stated that they
will shop at different stores with lower prices even if it is less
convenient (Berman, 2011). In Lean Thinking (2) by Womack
and Jones, the first lean principle was defining value
from the customers perspective. From this come two critical
factors that need to be clarified when strategizing the creation of
value:
This study indicates to what degree
customer preference for value has become
the overriding factor when making a purchasing decision. This could also be symptomatic of a lack of
confidence in pre-recession retailing. The prevailing evidence that the recession has caused a behavioural shift
in customer shopping patterns, may just be what was needed for retailers to become more customer centric and
competitive since customers are now more stimulated by value and saving.. In our exploratory study, different
responses to the concept of value can be extracted from our customer survey and have been applied related to
our value retailing model as illustrated in our recommendations found later in this report where (1) Value is low
price, (2) Value is the quality I get for the price I pay, and (3) Value is what I get for what I give and
encapsulated in the holistic experiencethrough service. In our local customer survey some interesting results
in terms of customer preference toPrice, Quality and Service was discovered. Figure 6 illustrates how
customers prioritised Service, Price and Quality in the different retail tiers (High-end, Mid-end and Low-end
Clothing &
Footwear18%
Health &
Beauty
11%
Cellular
10%
Household
9%
Figure 5 Customer Confidence
Who is the customer and what do they value?
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retailers). In High-End retailers quality outweighs both price and service whereas Price and Quality are
priority and outweighs Service in the Mid-End retail tier. Price is seen as the most important priority in the
Lower end of the retail sector. Figure 7 concludes that customers prefer price and quality as the determinant
when making buying decisions and to a lesser degree, value service. In our results 18%of customers value
service, 48% value price and 34% of customers regard quality as important. A limitation to the research
conducted relating to our value model is that customer access cost was not factored in as part of our immediate
scope and will therefore be exluded as part of our overall discussions.
Supply ChainSupply chain is the activity that manages the flow of information, money and material across the extended
enterprise, from suppliers through the functional silos of the firm to customers (www.manufacturingerp.com)
It is made up of the people, activities, information and resources involved in moving a product from its supplier
to customer. The key activities involved in the supply chain cycle are:
Planning
Raw Material
ManufacturingInventory
Distribution
Warehousing
Transportation
Forecasting
Customer Service
At the depth of the recession of 2009, SCM executives were focused primarily on survival and cost cutting.
Today, as the economy slowly moves toward recovery, The attention of SCM managers is also directed at
recovery. Fortunately for logisticians, supply chain management continues to be one of the few bright spots for
retailers, including pre-, mid- and post-recession. More and more companies rely on supply chain management
as a critical component to success and a bridge to better times.(The State of the Retail Supply Chain Study
2010)
Price
48%
Quality
34%
Service
18%
Price Quality Service
Figure 7 Customer Preference
High Mid Low
service price quality
Figure 6 Service, Price & Quality Preference
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As expected, on the top of the list of concerns for SCM executives is the speed of economic recovery. Retail
supply chain executives are actively and aggressively pursuing strategies to meet economic challenges, while
also seizing on opportunities to refine their capabilities, increase efficiencies, drive down costs and collaborate
with merchandising and store operations to maintain optimal shelf-level inventories. In addition to battling
economic uncertainty and supply chain challenges, retail SCM executives must handle internal stakeholder
demands and issues. These demands are varied and complex. According to the Supply Chain Study completed
in 2010 by the Auburn College of Business, the internal requirements that drive supply chain activity and
investment are: Alignment of strategies, responsive operations, continuous product availability, and rigorous
inventory control and cost management. Collectively, these internal requirements elevate the importance of
SCM. Retailers now assign greater responsibility to their SCM executives. However, supply chain teams are
required to fulfil seemingly incongruent goals. They must balance requirements for service responsiveness
against cost control, product availability against inventory rationalization, and high delivery frequency versus
transportation efficiency.
While the current business environment is not quite as chaotic as 2009, there is still no shortage of external and
internal issues that keep retail supply chain leaders awake at night. They face an uncertain economic recovery,
supply chain constraints and demanding internal customers.Integrating supply chain management across alldepartments is critical in the success of any supply chain management process as tight bonds and collaboration
is formed across all departments.Agile supply chains are those that are able to rapidly respond to new customer requirements and unexpected
competitive influences. The retailers that survived the poor economy of the past 2-3 years have already
accomplished the belt-tightening and inventory streamlining needed to ensure they operate efficient supply
chains. The strategic emphasis has shifted to agility as the path to establishing competitive differentiation.
Economic challenges are forcing retailers to get lean. At the same time, they have to
figu re ou t ho w to be ag ile.
ConsolidationConsolidation is a business strategy intended to improve the profitability of an organization. Retailers often
consolidate at different points of their life cycle as a means to serve their markets better. The financial rationale
for consolidation is that retailers can maintain or strengthen their competitive positions in the market place by
increasing their size, thereby lowering their costs by improving their bargaining power, expanding revenues
from consumers and markets and gaining market share across channels and formats. Retailers consolidate to
pool resources together and improve purchasing power through a Centralized Buying System
(www.onyxinvestments.com). There are various forms of Consolidation as listed below:
I. Brand ConsolidationBrand Consolidation offers retailers the opportunity to streamline costs, strengthen the brand and support
profitable brand growth and expansion. The CEO of a leading Value Apparel Retailer indicates that whilst the
South African economy enjoyed the excitement and hype of the World Cup in 2010, the recession hit South
African high end retailers the hardest. When asked why, he concluded that most organizations have started
consolidating their brands to the extent where their number of stores have reduced substantially, some of the
independent and smaller retailers even closed shop. Another CEO of a leading Apparel & Home Retailer stated
Consolidations are happening globally not only at brand level an example is Ackermans Comforts that nolonger exist. Yet another CEO of a leading Apparel Retailer stated that Companies are forced to focus on their
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core brands and to review their unsustainable brands. He also indicated that the challenge for retailers is to
understand their customers better to be able to respond to their needs faster, having the right product and the
right quantity at the right time.
II. Centralized Buying/Procurement SystemCentralized Buying/Purchasing systemMost Retailers are taking this route because it makes large single
orders possible thus bringing about economies of scale. This gives the Retailers more power to influence
suppliers and secure favourable prices and terms. As supermarket chains grow in size and in number of stores,
they develop and implement increasingly centralised controlled procurement systems (Reardon 2005). They are
all able to dictate their buying terms to suppliers who are expected to deliver products to central depots or
warehouses, where the products are then distributed to supermarkets and retail outlet stores (Gain report, 2005;
FPMC, 2003). Lower prices, larger discounts and lower transportation cost are obtained. These Retailers will
also be able to secure better and more favourable deals than companies that place small orders because of theirdecentralized structures. It also enables the retailers to develop a crop of specialist buyers with technical
expertise and a deep knowledge of the market. Since the department spends all its time on purchasing, it can
monitor the changes that are occurring in the economy and monitor new products entering the market. Because
they are the specialists in the field of buying with intimate knowledge of the market, they would know the best
place to buy the best product and the best time to make the purchase. This is a competitive advantage because
retailers with a centralized buying system will have new products first.
III. New entrants into the marketConsolidation in the Retail Sector in the longer term with the arrival of Wal-Mart is likely to lead to greater
consolidation not only in South Africas retailing environment but also in some of the industries supplying its
stores. In particular the 120 Cambridge Store rollout would impact the spaza shops and independent food
retailers in low-income areas, and this would intensify competition particularly at the bottom end of the market
and the weakest traders would take the most pain.
IV. Centralized Distribution SystemMost Retailers are going into regional distribution centres which are aimed at boosting the efficient handling of
stock to cut working capital thereby creating more profits and enabling them to compete more effectively. The
distribution channel considers the various parties for whom a product or service will travel through from the
time the product is manufactured to the point at which the end user will consume the product. Spar is the
perfect example of Centralised Distribution operation whereby much of the distribution channel is handled in
house thus resulting in greater efficiencies in the distribution channel and a reduction in costs as volume
discounts are still achievable from buying in bulk. Mass discounters, which include Game and Dion Wired
stores, shed about 800 jobs in 2010 due to the development of distribution centres, new technology and theconsolidation of workflows. The re-engineering and restructuring process was initiated in order to improve
operational efficiencies and the businesss ability to compete more effectively. (www.bizcommunity.com).
V. Supplier ConsolidationSupplier consolidation is the term used by businesses to describe the process of eliminating low capacity
suppliers in favour of a smaller number of high capacity providers. In a weakening economy, having a large
number of active suppliers operating at low capacity can be a drain both on the suppliers and on the businesses
they are supplying. Supplier consolidation is one way to combat the problems caused by such a situation. There
are several risks associated with utilizing a large number of low capacity suppliers that can be avoided by
practicing supplier consolidation. Firstly, many suppliers cannot afford to be competitive when production rate
is low. Second, reduced production speed and quality can result when suppliers are forced to lay off employeesdue to low utilization. Also, suppliers often find it necessary to sell off equipment and close facilities in the face
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of financial troubles. The CEO of a leading Apparel & Food Retailer indicated in terms of consolidation, we
drove our supplier base off shore which went from a low percentage to a higher percentage of direct imports.
They have consolidated their supplier base to fewer more meaningful suppliers to allow for better pricing.
VI. SKU ConsolidationIn the interest of reducing costs and streamlining storage and handling, many organizations have substantially
slashed the number of SKUs (stock keeping units) they use. They have also re-engineered their products to
their specification.
RecommendationsIn response to our problem statement very clear evidence emerged from our literature review as well as our
international immersion that the behavioural shift in customers will have a definite impact on how retailersshould conduct business. The retailers response therefore should be to decide whether a value strategy, low cost
or differentiation strategy is most suited or a combination of these.
Implementing a Value Compass
A value compass is an effective tool to evaluate and assess the retailers unique value proposition through
plotting its strengths on a scale of 05 (where 0 = low impact and 5 = high impact)Value Compass as adapted from JC Williams 2011
The value compass will give a clear indication of an organisations key strengths and where the organisations
value strategies are more focussed and also give insights to opportunities available to drive further value.
1. In response to the customer demands for value, our recommendations therefore include the
following:
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The following key components form part of the Value Compass:
Measure Description
Ease Refers to how accessible stores are to customers
Economical Refers to how affordable the pricing structure is
Experience Refers to the overall in-store experience
Ego Refers to the emotional impact the brand has on you
Examples of how to utilize the Value Compass :
Canadian Tire stores are located within a 15 kilometre radius of their customers. The company willtherefore rate 5 on ease of access to shopping
Wal-Mart is price focussed and will therefore score 5 on price. Local retailer Stuttafords will score 5 on the Ego axis of the compass, and Value Retailer Pep will measure 5 on the Pricing or Economic axis.
Research has shown that where organisations do not have clear differentiation on any of the above, this could
lead to mediocre performance in relation to market trends. Organisations therefore cannot be competitive in all
four areas as this is not sustainable. It is therefore recommended that organisations clearly define their point of
differentiation in one or two of the above 4 areas as key value drivers in the organisation and integrate this into
their business strategy.
This value compass can be used as a responsive tool for retailers with a current value retailing
model during a low economic period or it can be used as a conceptual tool to determine future
strategies.
Implementing or amending a Value Retailing Model
For the purpose of this study we will use the conceptual model of Value Retail developed by Berman (2010) that
is based on the following measures:
In the above model Value can be viewed as benefits divided by costs, whereby benefits include results
(functional aspects of products), as well as process quality (customer services). Costs include a products price
as well as access cost (negative customer experiences) (Berman, 2011:3).
Results
The concept of results extends beyond the product concept and focuses on solutions as opposed to basic product.
The focus for results must be on delivering value to the customer and is achieved through various offerings
including:-
Designing sophisticated product ranges that has utility and functional features, advantages andbenefits i.e.
=+
+
2. As a response to retailers whose current value retailing model is ineffective or to retailers who do
not have a current value retailing model we recommend the following:
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o Educational Toysdelivering on its purpose of educating your child when being played with.o Organic foodsthat seeks to address health risks posed by many processed foods.o Producing innovation clothing lines that limits the amount of time wasted in doing laundry.o Innovative technology in carsMercedes Benz park assistwhich can park itself.
Process Quality
This concept refers to positive customer experiences. There must be a continual assessment of the customer
experience. The Moment of Truth is the point at which the customer interacts with the business and the value
offered is a determinant of whether that customer is retained or lost. Process quality concepts include:-
High Level of SupportThere must be a commitment to the product offering and business must be prepared to offer the
customers efficient mechanisms to deal with after sales service requirements. IKEA in Canada sell
furniture pre-packed in flat boxes that require DYI installation. However, they also offer the servicesof trained installers as an alternative.
High Quality of Sales Person InteractionThere must be a dedicated service offering in specialised department stores i.e. House & Home and
personal shopping at Stuttafords. Knowledgeable sales associates with excellent product knowledge
further enhance the shopping experience.
Successful service recovery efforts (what the retailers will do when things go wrong)Retailers must be prepared to support their brand and the commitment to addressing customer service
and product failure issues with speed and efficiency. This will ensure that customers remain loyal. A
fair returns policy also ensures customer loyalty.
Short Check-out QueuesManagement can monitor customer flow and staffing can then be structured to ensure that the flow of
customers at check-out points is efficient and that the wait for customers is minimised. Self-check-out
cash points offer the customer the opportunity to scan and pay for their own purchases as used in Wal-
Mart.
High availability of items advertisedStock management in response to actual sales and forecasts for promotion periods is key to ensuring
that the correct quantity of advertised products are available at the time that the customer is in the store.
SEARS provide customers with access to browsing through catalogues electronically while in the store.
SimplicityH&M does this well in that they keep it simple from signage to labels and ticketing. There is noprinted signage however signage is displayed in the form of writing on the walls. This writing is in line
with the store's young and vibey image. There is no confusion with customers as to what they are to
expect in relation to price competitiveness. There is a strong focus on private labels that speak to low
cost fashion.
A companys sustainability strategy also adds value to the customer in terms of brand loyalty.Customers are drawn to companies that employ more sustainable strategies. Environmental awareness
and responsible green initiatives show customers that if retailers care about their environment, then
they will surely care about their customers.
Providing recipe solutionsAt Wegmanns in Pennsylvania in the USA they have a magazine called Menu that offers customers avariety of recipes. The Magazine is offered at no cost to the customer.
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Price
Price refers to the final purchase cost and is usually the primary competitive advantage in a low-cost strategy.
The pricing structure must offer the best value to the customer and must include:-
Delivery charges and credit termsThe full value offering to the customer on price must include terms and additional charges. Retailers
may be competitive on prices, but smart shoppers will also consider additional charges to ensure that
the entire offering has better value than any other retailer
Promotional StrategiesRetailers must create new and innovative promotional strategies like link savings. Apparel retailers in
Canada (Sport Check) offer a Buy 1 and get 50% off the second item.
Everyday Low Pricing on volume core itemsWegmanns advertise the lowest price on certain products and advertise that these products will remain
at these low prices for the rest of the year. Costco monitors their competitors pricing every week and
adjust their pricing structures accordingly to ensure that their prices are the lowest prices.
Integrity Pricing strategies (standing your ground against bargain hunters)This pricing policy is employed by Leons Furniture. They do not negotiate or offer discounts to
customers as they believe that their price offering is the best value that they can offer their customers,
even though it may not be the lowest price in the market.
Structuring Packaged DealsCompanies like Leons Furniture offer promotional deals and allow the customer to structure a dealthat only requires payment after 2 years. Many car dealerships in Canada offer similar structured deals.
Pricing differentiation can effectively reflect greater value for customersThis requires a negotiation for better prices with your suppliers, reducing gross margin and offerings of
value packs for certain products ranges. The value offered by Costco Wholesalers in Canada is the
lowest price, but the best quality. Product ranges must offer the best quality and an assortment of
choice.
Customer access cost
Customer access Costs includes negative customer experiences. Stores that are inconveniently located with little
or no public transport accessibility has high access cost.
Ease of finding itemsLarge stores require extensive in store browsing store maps at strategic points in the store (entrance,
back aisles) can ensure ease of access to products. The layout of the store can further encourage
random and impulse shopping. Liquor Control Board Ontario (LCBO) has signage indicating the area
for international wines to create ease of shopping for customers as it clearly differentiates not only by
product but by geographical location of imported product.
CommunicationHeadset and mobile communication between store staff will reduce the number of disruptions between
customer interaction and staff. This will promote enhanced customer interaction and speedy resolution
to customer queries.
Inventory Scanners must be provided and highlighted on the sales floor (especially in foods) to assistcustomers with real time price enquiries.
Tailored assortments cater to customers demographics and needs.
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Online channel and home deliveryOn-line advertising creates visual stores and allows customers to use their cell phones and e-mail toshop. A multi-channel strategy can be effective in being a low cost operator
A fun in store experience and adequate parking.One of the LCBO stores is located in an old railway station and the store retained the history and
original building to create both a shopping and history experience for the customer. Pictures of
celebrities who shopped there are proudly displayed for customers to look at.
Our recommendation is that the above value model be integrated with retailers existing retailing strategies or be
used to develop new value strategies to differentiate themselves from their competitors.
Business strategy outlines the plan to achieve competitive advantage in the marketplace. The supply
chain organization must develop its own strategy to ensure supply chain operations support overall
company goals.
An exceptional supply chain must be tailored to the customer experience youre trying to
have.
Develop a seamless and efficient supply chain
Dominion Warehousing and Distribution in Toronto, Canada, have invested in technology that provides
inventory management solutions for real time access to inventory. Dominions supply chain success is due to
the increased use of automated systems and multiple user applications vs. single user applications. Their
centralised distribution system allows their customer variable space costs as you only pay for the space you
occupy, unlike when you own the warehouse.
Figure 6 Supply Chain
3. Our recommendation to optimizing supply chain capabilities due to the structural shifts in supply
chain post-recession is listed as follows:
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Outsourcing warehousing and distribution
Companies can choose to trim their warehousing and distribution costs by outsourcing to a third party. When
outsourcing the distribution and warehousing, you stand a better chance of saving costs and that becomes a
solution to better serve your customers.
It reduces over ordering and controls redundant SKUs. It increases inventory control It reduces warehousing & distribution costs due to bulk shipments Improves delivery costs Eliminates rush/expedited or duplicate orders thus reducing the carbon footprint. Improved stock availability Satisfied customers Network flexibility Retail outlets can receive fewer shipments with smaller quantities of each item Order cycle time is reduced Value added services can be performed more easily Improved delivery time Effective collaboration Proper control over inventory Increased sales Increased service levels
Outsource Management of Supply Chain
Business can own the property and rent it out to an outsourced logistics company. They can then paythe logistic company fees to run their supply chain. This will allow the business to focus on what they
specialize in which is to grow the business.
Brand still can be marketed Inefficiencies can be eliminated
Centralised Distribution
Efficient handling of stock reduces working capital and increase profit Proper control of inventory Stock availability Direct control over their SKUs This can help on consolidating the SKU
Optimize cash and inventory management systems to manage costs
Use Information Management systems to improve Gross Margins and inventory productivity pre andpost-recession.
Invest correctly in technology and on the right projects. Remain laser focussed on core customer and value needs. Periods of low growth is also an opportunity to find alternative income sources i.e. subletting unused
and unnecessary space, this can include service vendors like dry cleaners, in-house bakeries,
pharmacies, jewellery shops, tailor shops, electronic repair services etc. (Berman, 2011).
Innovation -Microsoft spends money in research and development even in tough times so that they candeliver innovative products in their market, which demands innovative products.
Monitor Information Systems
Put transport management systems in place Use improved IT systems to perform information collaborations Use product monitoring systems, which includes monitoring new listed products All suppliers can be on EDI and SAP
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Centralized Buying
All buying divisions can be centralized and one buyer should be responsible for one category It makes procurement easy It gives the business competitive advantage Price negotiationsto add that to customer value Proper promotions planning Lot of risk involves due to incompetence of an individual Bad business decision
SKU Consolidation
Retailers consolidate SKUS to alleviate shopper confusion. It also allows better facings to brand merchandising(better facing for the lines that sell), provides improved inventory control, high profitability/cost savings. It also
allows shrinking shelf space so to improve trading density. It also allows private labels to be better exposed. As
an example, Canadian Tire in Canada constantly looks at ways to improve their range of their assortment and
constantly look at ways to remove SKUS that do not sell.
Supplier Consolidation
The most important reasons for consolidating your supplier base are performance improvement of the supplier
base and the internal organisation. Fewer suppliers results in improved resource allocation within the
organisation to manage the supplier base. A smaller supplier base also allows more resilience during a
downturn in trade. The time to reduce your supplier base is during a down turn, when materials resourcing is
reduced (Jamie Lidell, The trend towards Vendor Consolidation)
4. Our recommendations on how to become a low-cost retailer through consolidation are listed
below:
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Implementation Plan
Retailers need to examine their ability to increasingly adopt a low cost or differentiation strategy through
honestly assessing their capabilities (Berman, 2011)
Ensuring low cost operations is the primary driver in ensuring sustainability since costs are controlled by
management.
Conduct analysis on business's existing value strategy
To be used pre and post Strategy planning
Process to be owned by senior leadership
To be measured though sales perfomance, marketshare,
consumer confidence levels in brand
Value
Compass
Use to analyse key value strategies in conjunction with valuecompass
Integrate in strategic planning process
Owned by Business Leaders, Brand managers, Buying, Planning,
Operations and customer facing staff
To be measured by Sales performance, marketshare and
customer serivce indexes
Value Retail
Model
Assess supply chain efficiencies and establish cost saving
opportunities
Complete as part of ongoing business efficiency reviews
Owned by supply chain executives and driven by the board
To be measured through inventory management, on flooravailability and cost savings
Supply Chain
Assess the need for consolidation opportunities to drive costs,
improve brand presence and drive efficiencies
Complete as part of strategy planning and ongoing review
Owned by senior leadership and driven throughout the
organisation
To be measured through improved profitability, efficiencies
andprocess management
Consolidation
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ConclusionThe above report discussed the impact of the recession on the South African retail environment. It is evident
from research that the biggest impact the recession had, both locally and internationally, was on consumer
behaviour and spending patterns. This report further shows that consumer behavioural changes brought about
through the recession may very well be permanent and irreversible as people hold onto the lessons learnt and
refuse to go back to their previous spending habits. As a result of the recession a need arose for fundamental
changes in 3 key areas, namely increasing dominance of value retailing, structural shifts in supply change and
consolidation. The retailers response therefore should be to decide whether a value strategy, low cost or
differentiation strategy is most suited.
This study highlighted the degree to which customer preference for value has become the overriding factor
when making a purchasing decision. There is a need for retailers to become more customer centric and
competitive since customers are now more stimulated by value and saving. Value retail however is not
necessarily based on providing either the lowest cost or the highest level of differentiation. This research
provides an alternative view on the concept of value, and recommends that in response to the customers demand
for value the implementation of the Value Compass and the Value Retailing equation is considered.
This report makes further recommendations relating to optimising supply chain capabilities and consolidation.
Several low cost or differentiation strategies are presented in the form of recommendations that retailers can use.
Our report shows clearly the need for Retailers to examine their ability to increasingly adopt a low cost or
differentiation strategy through assessing their capabilities. Ensuring low cost operations is the primary driver in
ensuring sustainability and providing real value to the consumer.
In conclusion the change in consumer behaviour will remain into the foreseeable future. It is therefore strongly
recommended that retailers review and adapt their strategies related to Value retail, Supply Chain and
Consolidation to be successful companies in the ever changing South African retail landscape.
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AppendicesAppendix 1 Questionnaire for Business Executives and Analysts
Bu si ne ss Ex ecu tive s
No Question
1. One of the most significant results of the recession is the change in consumer behaviour. How significant
is this for your company?
2. Do you think customers have changed the way they shop permanently (even after the recession)
3. Has your business changed the way it is doing business post-Recession? With Particular focus on Supply
Chain, Value Strategies and consolidation.
4. Do you think Companies are forced to change their strategies with some of the big players entering the
market place?
5. Was there any temporary mechanism or strategy that was used to help your organization to cope with the
recession?
An al ys ts
6 Did the World Cup provide South Africa with an opportunity to buffer the effects of the recession on the
Retail Industry?
7 How severely was the South African economy and in particular whole and retail affected by the
recession?
8 Has the retail landscape changed since the recession?
If so, what has been the major area of change?
9 Do you think Companies are forced to change their strategies with some of the big players entering the
market place?
10 Do you believe that the Retail Industry is agile enough to adapt to changes in the economy and ensuresustainability in a recession?
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Questions
1. Have you changed your shopping pattern in the last 2 years? YES NO
2. Did the recent recession change the way you shop? YES NO
3. If Yes, where did you make the most changes in your shopping patterns? Food Clothing Furniture
Retailers
Where did
you shop in
2009
Where did you
shop in 2010
Where are
you shopping
in 2011
Is it due to
Service?
Is it due to
price?
Is it due to
quality?
Food Retailers
Woolworths
Pick n Pay
Shoprite
Spar
Checkers
Other
Apparel
Woolworths
Edgars
Mr Price
Foschini
Truworths
Other
General Merchandise
Makro
GameOther
4. Do you buy Private Labels or Branded Products?
5. Research has shown that consumer behaviour patterns have changed for good, does this apply to you?
Fast Forward Customer Survey July 2011
ppendices 2 Customer Survey
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Appendix 2 Customer behaviour trends post-recession
Consumer behaviours and trends emerging
from the recession
Further trends that will drive consumption
Recession Secret Shopper
The authors identified the above as skilled
bargain seekers.
Demand for simplicity
Consumers are seeking uncomplicated, user-friendly products
and services that simplify their lives. Downturns are stressful
and typically increase peoples desire for simplicity.
See-SawConsumer
The above group of consumers is in
perpetual search for bargains for their daily
needs, as well as investment items that will
keep their value for a long-term.
Focus on the boardroom
Outraged by corporate malfeasance, people are punishing
companies for unethical governance. The financial crisis has
put a spotlight on corporate governance, in particular the
malfeasance of some executives and the complicity of
companies boards.
Austerity Chic
The above term was adopted largely by the
no-frills affluent, a new breed of middle-
class savvy consumers that are expert
bargain hunters, consciously shopping in
discount stores and who manage their
diaries around the sales and bargains to be
had.
Discretionary thrift
Even those who do not need to economize are pursuing a
more wholesome and less wasteful life. Increasingly, though,
many affluent consumers are economizing as well, even
though they dont always have to.
Lipstick affect
Lipstick effect is the theory that when facing
an economic crisis, consumers will be more
willing to buy less costly luxury goods.
Instead of buying expensive fashion, women
will buy a lipstick-a little luxury treat that is
immediateand affordable.
Mercurial consumption
Easy access to information and friction-free purchasing ismaking consumers ever more agileand less loyal.
Domestic God/dess
In a recession, homeowners are electing to
redecorate rather than relocate. They are
embarking on home improvement projects
and doing it themselves rather than
employing professional decorators.
Green consumerism
Consumers are for - going pricey green products and instead
are cheaply and discreetly reducing waste
Individuality
The globalization of brands has created an
opposing trend, the search for bespoke,
personalized, and individualized products
and services
Decline of deference
The decline of deference is also driven by mounting
scepticism about the quality of information provided by
traditional sources of authority such as businesspeople,
economists, doctors, and the clergy. Ethical consumerism -
Altruistic consumption and spending, such as eating cage-
free eggs and giving to charity, are falling as people focus on
their own dire situations.
Extreme-experience seeking
Expensive, frivolous, or risky recreational experiences, is
quite common post-recession.
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Appendix 3 Executive and Analyst name references
Position Company
Company Executives
Chief Operations Executive Edcon
Executive Edcon
Executive Edcon
MD Furniture City Ellerines Holdings
GM Gauteng Region Pick and Pay
CEO Woolworths
Group Director Retail Woolworths
Group CEO Mr Price
Apparel MD Mr Price
Financial Director Apparel Mr Price
CEO Leons Furniture (Canada)
Vice President Marketing Canadian Tire (Canada)
CEO Dominion Warehousing and Distribution
CEO Comet (London)
Head of Logistics Allied Bakeries (London)
Analysts
Chief Investment Officer Canon Asset Management
Chairman British Retail Consortium
Chairman and Founder J.C. Williams Consulting
Analyst Price Waterhouse Coopers CanadaDirector of Consumer Insights Nielson Canada
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