WHAT IS A RETAIL STRATEGY?

Strategy

- is frequently use in retailing.

- is used to commonly it appears that all retailing decisions are strategic decisions.

Retail strategyis a statement identifying the

retailer’s target market’s, the format the retailer plans to use to satisfy the target market’s needs and the bases upon which the retailer plans to build a sustainable competitive advantage.

Target marketis the market segment toward

which the retailer plans to focus its resources and retail mix.

Retail format-suggests the type of retail

mix (nature of merchandise and service offered, pricing policy, advertising and promotion program, approach to store design and visual merchandising, typical location.Sustainable

competitive advantage

is an advantage over the competition that is not easily copied and thus can be maintained over a long period of time.

TARGET MARKET AND RETAIL FORMAT

Retailing concept is a management orientation that focuses a retailer on determining the needs of its target market and satisfying those needs more effectively and efficiently than its competitors do.

Retail market is a group of consumers with similar needs ( a market segment ) that is serviced by a group of rtailers using a similar retail format to satisfy them.

Retail market

Retail markets for women's apparel

Fashion segments

conservative TraditionalFashion-forward

Specialty store

Department store

Discount store

Off-price store

Catalog

Charmingshop

The GapThe Limited

Talbots

Wet sealUrban Outfitter

H&M

JCPenneyKhol’s

Macy’sSaks 5th ave

Bloomingdale’sNeiman Marcus

Family dollarDollar General

KmartWal-Mart Target

Rose stores T.J max SteinmartBluefly.com

FingerhutJCPenneyLands’EndNeiman MarcusBloomingdale’sAnthropologie

Reta

il F

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ats

BUILDING A SUSTAINABLE COMPETITIVE ADVANTAGE

The final element in a retail strategy is the retailer’s approach to building a sustainable competitive advantage. Any business activity that a retailer engages in can be the basis for a competitive advantage, but some advantages are sustainable over a long period of time.

Seven important opportunities for retailers to develop sustainable competitive

advantage

Customer Loyalty Location Human resource management Distribution and information systems Unique merchandise Vendor relations Customer Service

Customer Loyalty

Means that customers are committed to buying merchandise and services from a particular retailer.

Other bases for sustainable competitive advantage discussed in this section help attract and maintain loyal customers.

For instance, having dedicated employees, unique merchandise, and superior customer service all help solidify a loyal customer base.

o Customer Loyalty

Is more than simply liking one retailer over another

Retail Branding

Stores use brands to build loyalty in much the same way that manufacturers do

Positioning

A retailer builds customer loyalty by developing a clear, distinctive image of its retail offering and consistently reinforcing that image through its merchandise and service.

Involves the design and implementation of a retail mix to create an image of the retailer in the customer’s mind relative to its competitors.

Loyalty Program

Are part of an overall customer relationship management program (CRM).

Customer loyalty programs work hand-in-hand with CRM. Members of loyalty programs are identified when they buy because they use some type of loyalty card.

Their purchase information then is stored n a huge database known as data warehouse.

Loyalty Program

From this data warehouse, analysts determine what types of merchandise and services certain groups of customers are buying.

Location

“what are the 3 important things in retailing? Is “Location, location, location.”

Location is the critical factor in consumers’ selection of a store.

A competitive advantage based on location is sustainable because it is not easily duplicated.

Human Resource Management

Retailing is a labor-intensive business, in which employees play a major role in providing services for customers and building customer loyalty.

Distribution and information systems

o All retailers strive to reduce operating costs-the costs associated with running the business-and make sure the merchandise that customers want is available.

o Retailers achieve these efficiencies by developing sophisticated distribution and information systems and sharing information with vendors.

Unique merchandise

It is difficult for retailers to develop a competitive advantage through merchandise because most competitors can purchase and sell the same popular national brands.

Many retailers realize a sustainable competitive advantage by developing Private Label Brands (store brands), which are products developed and marketed by a retailer and available only from that retailer.

Vendor Relations

By developing strong relations with vendors, retailers may gain exclusive rights to sell merchandise in a specific region, obtain special terms of purchase that are not available to competitors who lack such relationships, or receive popular merchandise in short supply.

Customer Service

Retailers also can build a sustainable competitive advantage by offering excellent customer service. Offering good service consistently is difficult because customer service is provided by retail employees, and humans are less consistent than machines.

The quality of service can vary from person to person and from day to day.

Customer Service

Retailers that offer good customer service instill its importance in their employees over a long period of time through coaching and training.

Multiple Sources of Advantage

To build a sustainable competitive advantage, retailers typically don’t rely on a single approach, such as low cost of excellent service.

Instead, they need multiple approaches to build as high a wall around their position as possible.

Growth Strategies

Four types of growth opportunities that retailers may pursue:

1. Market Penetration2. Market Expansion3. Retail Format Development4. Diversification

1. Market Penetration

A market penetration growth opportunity involves realizing growth by directing efforts toward existing customers using the retailer’s present retailing format.

Market penetration approaches include opening more stores in the target market keeping existing stores open for longer hours.

Market Penetration

Other approaches involve displaying merchandise to increase impulse purchases and training sales people.

Cross-selling means that sale associates in one department attempt to sell complementary merchandise from other departments to their customer’s.

Market Penetration

2. Market Expansion

A market expansion growth opportunity involves using the existing retail format in new market segments.

3. Retail Format Development

A retail format development growth opportunity is an opportunity in which a retailer develops a new retail format-a format with a different retail mix-for the same target market.

4. Diversification

A diversification growth opportunity is one in which a retailer introduces a new retail format directed toward a market segment that’s not currently served by the retailer.

Diversification opportunities are either related or unrelated

Related versus Unrelated Diversification

In a related diversification growth opportunity, retailer’s present target market or retail format shares something in common with the new opportunity.

Unrelated diversification lacks any commonality between the present business and the new business.

Vertical Integration

Is diversification by retailers into wholesaling or manufacturing.

In addition, retailers and manufacturers have different customers; the immediate customers for a manufacturer’s merchandise are retailers, whereas a retailer’s customers are consumers.

Strategic Opportunities and Competitive Advantage

Typically, retailers have the greatest competitive advantage when they engage in opportunities that are similar to their present retail strategy.

Global Growth Opportunities

International expansion is a market expansion growth opportunity that many retailers find attractive. But international expansion can be risky because retailers must deal with different government regulations, cultural traditions, supply chain considerations, and languages.

Key to success

4 characteristics of retailers that have successfully exploited international growth opportunities:

a. A global sustainable competitive advantage

b. Adaptabilityc. Global cultured. Financial resources

a. A global sustainable competitive advantage

Entry into non-domestic markets is most successful when the expansion opportunity is consistent with the retailer’s core bases of competitive advantage.Core Advantage Global Retailer ExampleLow-cost, efficient operation Wal-Mart, CarrefourStrong private brands IKEA, StarbucksFashion reputation The Gap, Zara, H&MCategory dominance Office Depot, Toys “R” Us

b. Adaptability

While successful global retailers build on their core competencies, they also recognize cultural differences and adapt their core strategy to the needs of local markets.

C. Global culture

To be global, retailers must think globally. It is not sufficient to transplant a home-country culture and infrastructure into another country.

Financial Resources

Expansion into international markets requires a long term commitment and considerable upfront planning. Retailers find it very difficult to generate short-term profits when they make the transition to global retailing.

Entry Strategies

4 approaches that retailers can take when entering nondomestic markets are:

1. Direct investment2. Joint Venture3. Strategic alliance4. Franchising

1. Direct investment

Involves a retail firm investing in and owning a division or subsidiary that operates in a foreign country. This entry strategy requires the highest level of investment and exposes the retailer to significant risks, but is also has the highest potential returns.

2. Joint Venture

Is formed when the entering retailer pools its resources with a local retailer to form a new company in which ownership, control, and profits are shared.

3. Strategic alliance

is a collaborate relationship between independent firms.

4. Franchising

Offers the lowest risk and requires the least investment. However, the entrant has limited control over the retail operations in the foreign country, potential profit is reduced, and the risk of assisting in the creation of a local domestic competitor is increased.

The Strategic Retail Planning Process

Entails the set of steps a retailer goes through to develop a strategic retail plan. It describes how retailers select target market segments, determine the appropriate retail format, and build sustainable competitive advantages.

The planning process can be used to formulate strategic plans at different levels within a retail corporation.

Stages in the strategic retail planning process

Exhibit 5-5

1. Define the business mission

2. Conduct a situation audit:Market attractiveness analysisCompetitor analysisSelf-analysis

3. Identify strategic opportunities

4. Evaluate strategic alternatives

5. Establish specific resources

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments

1. Define the business mission

The first step in the strategic retail planning process is to define the business mission.

The mission statement is a broad description of a retailers objectives and the scope of activities it plans to undertake.

The mission statement defines the general nature of the target segments in retail formats on which the firm will focus.

business mission

2. Conduct a situation audit

After developing a mission statement and setting objectives, the next step in the strategic planning process is to conduct a situation audit, an analysis of the opportunities and threats in retail environment and the strengths and weaknesses of the retail business relative to its competitors.

Market Factors

Some critical factors related to consumers and their buying patterns and the target market size and growth, sales cyclicity, and seasonality. Market size, typically measured in retail sales dollars, is important because it indicates a retailer’s opportunity to generate revenues to cover its investment.

Competitive Factors

The nature of the competition in retail market is affective by barriers to entry, the bargaining power or vendors, and competitive rivalry.

Barriers to entry institute condition in a retail market that make it difficult for other firms to enter the market, such as scale economies, customer loyalty, and the availability of great locations.

Competitive Factors

Scale economies are cost advantages due to a retailer’s size. Markets dominated by large competitors with scale economies are typically unattractive.

Bargaining power of vendors markets are less attractive when only a few vendors control the merchandise sold in it.

Environmental Factors

can affect market attractiveness span technological, economic, regulatory, and social changes.

When a retail market is going through significant changes in technology, existing competitors are vulnerable to new entrants that are skilled at using the new technology.

Strengths and weaknesses analysis

The most critical aspect of the situation audit is for a retailer to determine its unique capabilities in terms of each strengths and weaknesses relative to the competition.

Indicates how will the business can seize opportunities and avoid harm and threats in the environment.

3. Identify Strategic Opportunities

After completing the situation audit, the next step is to identify opportunities for increasing retail sales. Kelly Bradford presently competes in gift retailing using a specialty store format.

Identify Strategic Opportunities

Market penetration

1. Increase size of present stores and amount of merchandize in stores

2. Open additional gift stores in Chicago area

Market expansion

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

2. Sell lower-priced gifts in present stores

Format Development

1. Sell apparel and other nongift merchandise to same customers in same or new stores.

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

Diversification

1. Manufacture craft gifts.2. Open apparel stores targeted toward

teenagers.3. Open a category specialist selling low-

priced gifts

4. Evaluate Strategic Opportunities

The 4th step in the strategic planning progress is to evaluate opportunities that have been identified in the situation audit.

The evaluation determines the retailer’s potential to establish a sustainable competitive advantage and reap long-term profits from the opportunities being evaluated.

5. Establish specific objective and allocate resources

After evaluating the strategic investment opportunities, the next step in the strategic planning process is to establish a specific objective for each opportunity.

The retailer’s overall objective is included in the mission statement; the specific objectives are goals against which progress toward the over all objective can be measured.

6. Develop a retail mix to implement Strategy

The 6th step in the planning process is to develop a retail mix for each opportunity in which an investment will be made and control and evaluate performance.

7. Evaluate Performance and Make Adjustments

The final step in the planning process is to evaluate the results of the strategy and implementation program.

If the retailers is meeting or exceeding its objectives, changes aren’t needed. But if the retailer fails to meet its objectives, reanalysis is required.

Thank you..