Retail Market Strategy

CHAPTER 5

A retail strategy is a statement identifying…1. The retailer’s target market.2. The format the retailer plans to use to satisfy the target market’s needs.3. The bases on which the retailer plans to build a sustainable competitive advantage.

What’s Retail Strategy?

the market segment(s) toward which the retailer plans to focus its resources and retail mix

Target Market

Who

Retail Formatthe nature of the retailer’s operations—its retail mix

Sustainable competitive advantageEstablishing a competitive advantage means that the retailer, in effect, builds a wall around its position in a retail market, that is, around its present and potential customers and its competitors

Relationships with Customers Customer Loyalty means that Customers will be reluctant to patronize competitive retailers

Retailers build loyalty by:• Developing a strong brand image• Having a clear and consistent

positioning• Developing a unique Merchandise• Providing outstanding customer

service• Undertaking customer relationship

management (CRM) programs

• 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

Relationships with SuppliersVender Relations

Efficiency of Internal Operations

Distribution and Information SystemsFlow of InformationVendor Distribution Center Store

By decreasing costs here, the is more money available to invest in:• Better services• Increase in breadth and depth• Decrease in prices

Human resource Management“Employees are key to build a sustainable competitive advantage”

Recruiting, Training and Retaining great employees are challenge.

Starbucks creates a competitive advantage by picking multiple good locations that saturate area.

is a critical opportunity for developing competitive advantage for 2 reason.First, location is the most important factor determining which store a consumer patronize.Second, location is sustainable competitive advantage.

Location

Multiple Sources of AdvantageRetailers cannot rely on a single approach. Instead, the use multiple approaches to build as high a wall around their position as possible

For Example

Opportunities

Growth StrategiesFour types of growth opportunities that retailers may pursue.

Market Penetration

Opportunities

Market penetration approach Include: Opening more store in the target market Keeping existing stores open for longer hours Cross-selling – sales associates in one

department sell complimentary merchandise from other departments

Existing Target Markets – Existing Retail Format

Market Expansion

Opportunities

New Target Markets – Existing Retail Format

Example

Retail Format Development

Opportunities

The smallest is Tesco Express up to 3,000 Square feetTesco Metro Stores are 7000-5000 Square feetTesco superstores up to 50,000 Square feetTesco Extra stores more than 60,000 Square feet

Existing Target Markets – New Retail Format

Tesco U.K.

Example

Diversification

Opportunities

Related diversification growth opportunity,The retailer’s present target market or retail format shares something in common with the new opportunity

Unrelated diversification growth opportunityhas little commonality between the retailer’s present business and the new growth opportunity

New Target Markets – New Retail Format

Retailers can increase: sales knowledge and systems bargaining power with vendors

Expending operations to international markets.

Global Growth Opportunities

Attractiveness of International MarketTwo factors1. The potential size of the retail market in the country2.The degree to which the country does and can support the entry of foreign retailers.

Indicator of the Attractiveness of International Markets

A retailer of video games

GameStop, would find a country with a large percentage of people under 19 to be more attractive than a country with a large percentage of people over 65.

India

Problems: The world’s largest pluralistic democracy Myriad cultures 22 official languages Restricts foreign investment

The retail industry is divided into organized and unorganized sectors

China

Problems: Operating costs are increasing Managerial talent is becoming more difficult to find and

retain Underdeveloped and inefficient supply chain predominates

China is rapidly developing the infrastructure to support modern retailing

Globally Sustainable

Competitive Advantage

Adaptability

Global Culture

Financial Resource

Key to

Low cost, efficient operations: Wal-Mart, Carrefour

Strong private label brands: Starbucks, KFC

Fashion Reputation:The Gap, Zara, H&M

Category dominance: Best Buy, IKEA, Toys R Us

Globally Sustainable Competitive Advantage

Color preference, the preferred cut of apparel, and sizes differ across cultures

Peak selling seasons Store designs and layouts Government regulations and cultural

values can affect store operations.

Global CultureIt is not sufficient to transplant a home-country culture and infrastructure to another country

more than 30 years of international experience in 30 countries, both developed and developing.

Financial Resource

the large firms generally are in a strong financial position and therefore have the ability to keep investing in projects long enough to become successful.

Entr

y St

rate

gies

Franchising

Joint Venture Direct Investment

Strategic Alliance

Direct InvestmentDirect Investmentoccurs when a retail firm invests in and owns a retail operation in a foreign country. Advantages: the highest potential returnsthe retailer has complete control of the operations

Disadvantages:the highest level of investment exposes the retailer to the greatest risks

Joint Venture• More resources• reduces the entrant’s risks• Increased productivity and greater profits• Sharing of costs and risks with partners• ownership, control, and profits are shared

Problems with this entry approach can arise if the partners disagree or the government places restrictions on the repatriation of profits.

EXAM

PLE

Strategic AllianceA strategic alliance is a collaborative relationship between independent firms.

FranchisingAdvantages: the lowest risk the least investment

Disadvantages: the retailer has limited

control Country potential profit is reduced local domestic competitor

increases

Source: http://www.franchisedirect.com/top100globalfranchises/rankings/

Top 5 Global Franchises - 2013 Rankings

The Strategic Retail Planning ProcessThe set of steps a retailer goes through to develop a strategy and plan

1. Define the business mission

2. Conduct a situation audit: - Market attractiveness analysis - Competitor analysis - Self-analysis

3. Identify strategic opportunities

4. Evaluate strategic alternatives

5. Establish specific objectives and allocate resource

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments

7 Steps

Step 1: Define the Business MissionThe mission statement is a broad description of a retailer’s objectives and the scope of activities it plans to undertake.

Managers need to answer QUESTIONS:

5I. What business are we in?II. What should our business be in the future?III. Who are our customer?IV. What are our capabilities?V. What do we want to accomplish?

Step 2: Conduct a situation AuditElements in a Situation Audit

Step 3: Identify Strategic Opportunities for increasing retail sales

Step 5: Establish Specific Objectives and Allocate ResourcesThe retailer’s overall objective is included in the mission statement; the specific objectives are goals against which progress toward the overall objective can be measured.

These specific objectives have three component:1. The performance sought2. A time frame3. The levels of investment

Step 4: Evaluate Strategic OpportunitiesA retailer must focus on opportunities that utilize its strengths and its competitive advantage.

Step 6: Develop a retail mix to implement strategy

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

Step 7: Evaluate performance and make adjustments

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