Topic 5: Retail Market Strategy
Learning Objectives
1. Define the retail strategy.
2. Illustrate how retailers build a sustainable competitive advantage.
3. Classify the different strategic growth opportunities retailers pursue.
4. Identify issues that arise as domestic retailers become global retailers.
5. Know the steps retailers go through to develop a strategic plan.
Retail Strategy
A retail strategy is a statement identifying:
➢ the retailer's target market
➢ the format and resources the retailer plans to use to satisfy the target market's
needs
➢ the bases on which the retailer plans to build a sustainable competitive advantage
Target Market
- the market segment(s) toward which retailer plans to focus its resources and retail
mix.
Retail Format
- describes the nature of the retailer’s operations-its retail mix that it will be use to
satisfy the needs of its target market
Sustainable Competitive Advantage
- is an advantage the retailer has over its competition that is not easily copied by
competitors and thus can be maintained over a long period of time.
CENTRAL CONCEPTS IN A RETAIL MARKET STRATEGY
Target Market and Retail Format
Building a Sustainable Competitive Advantage
Approaches for developing a sustainable competitive advantage
➢ building strong relationships with customers
➢ building strong relationships with suppliers
➢ achieving efficient internal operations
Relationships with Customers—Customer Loyalty
Customer loyalty means that customers are committed to buying merchandise and
services
from a particular retailer
➢ Brand image
➢ Positioning
➢ Unique Merchandise
➢ Customer Service
➢ Customer Relationship Management Programs
➢ Building Media, a Retail Community Using Social
Relationship with Suppliers
Treat your suppliers as your PARTNERS.
Efficiency of Internal Operations
- Human Resource Management
- Distribution and Information Systems
Location
“What are the three most important things in retailing?”
“Location, location, location.”
Fact: Seventy-four percent of U.S. consumers said that shopping locations should be
located no more than a 15-minute travel time from their homes
Multiple Sources of Advantage
➢ To build an advantage that is sustainable for a long period of time, retailers
typically, cannot rely on a single approach, such as good locations or excellent customer
service. Instead, they use multiple approaches to build as high a wall around their
position as possible
Growth Strategy for Retailers
Market Penetration
- Company growth by increasing sales of current products to current market-
segments without changing the product
Market Development
- Company growth by identifying and developing new market segments for current
company products
Format Development
- Company growth by offering modified or new format to current market segments.
Diversification
- Company growth through starting up or acquiring businesses outside the company’s
current products and markets.
Market Development Approaches
Launching Products into additional
Geographic markets
1.Local to regional expansion
2. Regional to national expansion
3. National to international expansion
Targeting existing products to
other market segments
1. Modifying product to appeal to other market segments
2. Entering other channels of distribution
3. Advertising in other media
Types of Diversification
Related diversification
- Involves diversifying into businesses whose value chains possess competitively
valuable “strategic fits” with value chain/s of firm's present business/es
Unrelated diversification
involves diversifying into business with no competitively valuable value chain strategic
fits with firm's present business/es
Types of Strategies
Vertical Integration
A distribution channel structure in which producers, wholesalers and retailers act as a
unified system.
Horizontal Integration
Two or more companies at one level join together to follow a new market opportunity.
Global Growth Opportunities
Attractiveness of International Markets
Keys to Success in Global Retailing
➢ Globally sustainable competitive advantage
➢ Adaptability
➢ Global culture
➢ Financial resources
Entry Strategies
Direct Investment
- Occurs when a retail firm invests in and owns a retail operation in a foreign country.
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.
Strategic Alliance
- Is a collaborative relationship between independent firms.
Franchising
- Offers the lowest risk and requires the least investment, but also has the lowest
potential return on investment
THE STRATEGIC RETAIL PLANNING PROCESS
Strategic Retail Planning Process – is a set of steps a retailer goes through to develop a
strategy and plan
Step 1: Define the Business Mission
➢ Mission statement is a broad description of a retailer’s objectives and the scope
of activities it plans to undertake.
(1) What business are we in?
(2) What should our business be in the future?
(3) Who are our customers?
(4) What are our capabilities?
(5) What do we want to accomplish?
Mission Statement Component
1. Customers- Who are the firm's customers?
2. Products or services-What are the firm's major product or services?
3. Markets-Geographically, where does the firm compete?
4. Technology-is the firm technologically current?
5. Concern for survival, growth, and profitability-Is the firm committed to growth and
financial soundness?
6. Philosophy—What are the basic beliefs, values, aspirations, and ethical
7. Self-concept—What is the firm's distinctive competence or major competitive advantage?
8. Concern for public image- Is the firm responsive to social, community, and
environmental
concerns?
9. Concern for employees-Are employees a valuable asset of the firm?
Step 2: Conduct a SWOT Analysis
External Environment
Market Factors
Competitive Factors
➢ Barriers to entry
➢ Bargaining power of vendors
➢ Competitive Rivalry
Environmental Dynamics
Step 3: Identify Strategic Opportunities
Step 4: Evaluate Strategic Opportunities
Step 5: Establish Specific Objectives and allocate resources
Step 6: Develop a Retail Mix to Implement the Strategy
Step 7: Evaluate Performance and Make Adjustments
Topic 6: Retail Locations
RETAIL LOCATIONS
WHAT ARE THE THREE MOST IMPORTANT THIS IN RETAIOLING?
LOCATION, LOCATION, LOCATION!
TYPES OF RETAIL LOCATION
• UNPLANNED LOCATIONS – DO NOT HAVE CENTRALIZED MANAGEMENT THAT DETERMINES
WHAT STORES WILL BE IN A DEVELOPMENT, WHERE THE SPECIFIC STORES WILL BE LOCATED,
AND HOW THEY WILL BE OPERATED
• PLANNED LOCATIONS- THE SHOPPING CENTER DEVELOPERS AND/OR MANAGER MAKES AND
ENFORCES POLICIES THAT GOVERN STORE OPERATIONS, SUCH AS THE HOURS THAT A STORE
MUST BE OPENED.
TYPES OF RETAIL LOCATION
UNPLANNED LOCATIONS
• FREESTANDING SITES- ARE RETAIL LOCATIONS FOR AN INDIVIDUAL, ISOLATED STORE
UNCONNECTED TO OTHER STORES; HOWEVER, THEY MIGHT BE NEAR OTHER FREESTANDINGS
STORES OR NEAR A SHOPPING CENTER.
• URBAN LOCATIONS- URBAN AREAS IN LARGE CITIES OFFER THREE TYPESOF LOCATIONS:
1. CENTRAL BUSINESS DISTRICT
2. INNER CITY
3. GENTRIFIED RESIDENTIAL SITES
• MAINSTREAM LOCATIONS- MAIN STREET REFER TO THE TRADITIONAL DOWNTOWN SHOPPING
AREA IN SMALLER TOWNS AND SECONDARY SHOPPING AREAS IN LARGE CITIES AND THEIR
SUBURBS.
FREESTANDING SITES
ADVANTAGES
• CONVENIENCE FOR CUSTOMERS
• HIGH VEHICULAR TRAFFIC AND VISIBILITY
• MODEST OCCUPANCY COSTS
• SEPERATION FROM COMPETITION
DISADVANTAGES
• LIMITED TRADE AREA WHEN NOT AROUND NEARBY RETAILERS
• HIGHER OCCUPANCY COSTS THAT STRIP CENTERS
• USUALLY LOCATED WHERE THERE IS LITTLE PEDESTRIAN TRAFFIC
URBAN LOCATIONS
• CENTRAL BUSINESS DISTRICT- IS THE TRADITIONAL DOWNTOWN FINANCIAL AND BUSINSS
AREA IN A CITTY OR TOWN
• INNER CITY- URBANDECAY IS THE PROCESS OF A PREVIOUSLY FUNCTIONING CITY, OR PART OF A
CITY, FALLING INTO DISPERAIR. THE INNER CITY IS A LOW INCOME RESIDENTIAL AREA WITHIN A
LARGE CITY.
• GENTRIFIED RESIDENTIAL SITES- MANY INNER-CITY AREAS ARE GOING THROUGH A PROCESS OF
GENTRIFICATION-THE RENEWAL AND REBUILDING OF OFFICES, HOUSING AND RETAILERS IN
DETERIORATING AREAS-COUPLED WITH AN INFLUX OF MORE FFLUENT PEOPLE THAT DISPLACES
THE FORMER, LOWER-INCOME RESIDENTS.
MAIN STREETS VS. CENTRAL BUSINESS DISTRICT
• OCCUPANCY COSTS ARE GENERALLY LOWER THAN GENTRIFIED URBAN LOCATION
• FEWER PEOPLE ARE EMPLOYED
• SMALLER SELECTION DUE TO FEWER STORES
• RANGE OF ENTERATINMENT IS USUALLY SMALLER
• CITY PLANNING SOMETIMES RESTRICTS STORE OPERATIONS
INNER CITY
HIGH DENSITY URBAN AREAS WITH HIGHER UNEMPLOYMENT AND LOWER MEDIAN INCOMES THAT
SURROUNDINGS AREAS
• RETAILERS HERE ACHIEVE HIGHER SALES VOLUME AND HIGHER MARGINS, THUS
PRODUCING HIGHER PROFITS
• REDEVELOPMENTS IN INNER CITIES CAN CAUSE INCREASED TRAFFIC AND PARKING
DIFFICULTIES, CAUSING THEM TO BE CONTROVERSIAL
GENTRIFIED RESIDENTIAL SITES
• ADVANTAGESLOWER OCCUPACY COSTS
• HIGHER PEDESTRIAN TRAFFIC
DISADVANTAGES
• TRAFFIC IS LIMITED DUE TO CONGESTION
• PARKING PROBLEMS REDUCE CONSUMER CONVENIENCE
TYPES OF RETAIL LOCATIONS
SHOPPING CENTERS AND PLANNED RETAIL LOCATIONS
SHOOPING CENTER – IS A GROUP OF RETAIL AND OTHER COMMERCIAL ESTABLISHMENTS THAT ARE
PLANNED, DEVELOPED, OWNED AND MANAGED AS A SING PROPERTY
COMMON AREAS MAINTENANCE (CAM)
ANCHOR STORE- MAJOR RETAILERS IN THE AREA THAT ATTRACT SIGNIFICANT NUMBER OF CONSUMERS
AND CONSEQUENTLY MAKE THE CENTER MORE APPEALING FOR OTHER RETAILERS.
SHOOPING CENTER PROPERTY MANAGEMENT FIRM- CIMPANY THAT SPECIALIZES IN DEVELOPING,
OWNING AND/OR MANAGING SHOPPING CENTERS
TYPES OF RETAIL LOCATION
SHOPPING CENTERS AND PLANNED RETAIL LOCATIONS
CONVENIENCE, NEGHBORHOOD, AND COMMUNITY SHOPPING CENTERS- ALSO CALLED STRIP SHOPPING
CENTERS.
*ARE ATTACHED ROWS OF OPEN-AIR STORES WITH ONSITE PARKING USUALLY LOCATED IN FRONT OF
THE STORES.
POWER CENTERS- ARE SHOPPING CENTERS THAT CONSIST PRIMARILY OF COLLECTIONS OF BIGBOX
RETAIL SBTORES.
ENCLOSED SHOPPING MALLS- SHOPPING MALLS ARE ENCLOSED, CLIMATE-CONTROLLED, LIGHTED
SHOPPING CENTERS WITH RETAIL STORES ON ONE OR BOTH SIDES OF AN ENCLOSED WALKWAY
*REGIONAL MALLS
*SUPER-REGIONAL MALLS
TYPES OF RETAIL LOCATION
LIIFESTYLE CENTERS- ARE SHOPPING CENTERS THAT HAVE AN OPEN-AIR CONFIGURATION OF SPECIALTY
STORES, ENTERTAINMENT, AND RESTAURANTS, WITH DESIGN AMBIENCE AND AMENTIES SUCH AS
FOUNTAINS AND STREET FURNITURE.
MIXED-USE DEVELOPMENTS (MXDs)- COMBINE SEVERAL DIFFERENT USES INTO ONE COMPLEX
INCLUDING RETAIL, OFFICE RESIDENTIAL, HOTEL, RECREATION OR OTHER FUNCTIONS
OUTLET CENTERS- ARE SHOPPING CENTERS THAT CONTAINS MOSTLY MANUFACTURERS AND RETAILERS
OUTLET STPORE.
Convenience, Neighborhood and Community Shopping Centers
Advantages
- Convenient locations
- Easy Parking
- Low occupancy costs
Disadvantage
- Limited trade area
- Lack of entertainment
- No protection from weather
Power Centers
- Offers low occupancy cost
- Offer modest levels of consumer convenience and vehicular and pedestrian traffic
- Growth of this reflects growth in category specialist
Enclosed Shopping Malls
Advantages
- Wide variety of stores
- Wide assortment of merchandise
- Shopping and entertainment
- No inclement weather
- Uniform hours of operations
- Attracts many Shoppers
Disadvantages
- Occupancy are generally high
- Mall control over business operations
- Competition can be intense
Lifestyle Centers
Advantages
- Ease of parking
- Relaxed open-air environment
- Pedestrian traffic tends to be higher
- Occupancy costs and operating restrictions are less
Disadvantages
- Less retail space
- Smaller trade areas
- Attract fewer customers
Mixed-use Developments
- Pedestrian-oriented and therefore facilitate a live-work-play environment
- Appeal to people who have had enough of long commutes to work
- MXDs are popular with retailers because they bring additional shoppers to their
stores
Outlet Centers
CHAPTER 10
Information Systems and Supply Chain Management
Supply chain management .....
• Efficient and effective integration of suppliers, manufacturers, warehouses, stores, and
transportation intermediaries into a seamless value chain.
• Merchandise is produced and distributed in the right quantities; to the right locations; and at
the right time.
• Minimization of system wide costs, while satisfying the service levels their customers require.
Strategic Importance of Supply Chain Management
Opportunity to Increase Sales by Making the Right Merchandise is in the Right Place at the Right Time
• Fewer Stock-outs
• Greater Assortment with Less Inventory
• Opportunity to Reduce Costs
• Transportation Costs
• Inventory Holding Costs
• Improved ROI
Improved Product Availability
These benefits translate into greater sales, lower costs, higher inventory turnover, and lower markdowns
for retailers
Benefits of Efficient Supply Chain Management to Customers:
• Reduced stock outs – merchandise will be available when the customer wants them
• Tailoring assortments – the right merchandise is available at the right store
Information Flows
1. When a customer purchases a toaster oven, sales associate scans UPC code on merchandise and
customer credit card/loyalty card
2. Information about purchase is transmitted from POS terminal to the buyer/planner. The planner
uses this information to monitor and analyze sales and decide to reorder more toaster ovens or
reduce its prices if sales are below expectations
3. Sales transaction data are sent directly from the store to the vendor, and the vendor decides
when to ship more toaster ovens to the distribution center and stores
4. When inventory drops to a specified level in the distribution center, buyer/planner
communicates with vendor, and then places a purchase order to re-supply stores with toaster
ovens
5. Buyer/planner notifies distribution center about incoming orders and how they are to be
distributed to stores
6. Store managers inform distribution center about receipt of toaster ovens and coordinate
deliveries
7. When the manufacturer ships the toaster ovens to the distribution center, it sends an advanced
shipping notice to the distribution center
Electronic Data Interchange
EDI is the computer-to-computer exchange of business documents between retailers and vendors
• Merchandise sales, Inventory On Hand, Orders
• Advanced shipping notices,
• Receipt of merchandise, Invoices for payment
EDI Security
There are implications of security failures (loss of data, loss of public confidence), but retailers have
security policy objectives:
Authentication – system assures person on other end of session is who it claims to be
Authorization - that person has permission to carry out request
Integrity – info arriving is the same that was sent
The Physical Flow of Merchandise – Logistics
• Logistics:
• The aspect of supply chain that refers to the planning, implementation, and control of the efficient
flow and storage of goods, services, and related information from the point of origin to the point of
consumption to meet customers’ requirements
Merchandise Flow
Retailers can have merchandise shipped directly to their stores (path 3) or to their distribution centers
(paths 1 and 2)
Advantages of Using a Distribution Center
• More accurate sales forecasts are possible when retailers combine forecasts for many stores serviced
by one distributor
• Enables retailers to carry less merchandise in the store
• Easier to avoid running out of stock
• Retail store space is more expensive than space at the distribution center
Pull and Push Supply Chain
ADVNATAGE OF Direct Store Delivery
• Gets merchandise faster, and is thus used for perishable goods (meat and produce)
• Helps the retailer’s image of being the first to sell the latest product (video games) or fads
• Some vendors provide direct store delivery for retailers to ensure that their products are on
thestore’s shelves, properly displayed, and fresh
Reverse Logistics
• The Process of moving returned goods from their customer destination for the purpose of
capturing value or proper disposal
• Retailers recover loss through on-line auctions
• Reverse-logistics systems are challenging
• Items may be damaged or require special handling
• Transportation costs are high
Drop Shipping
Drop Shipping, or consumer direct fulfillment, is a system in which retailers receive orders from
customers and relay these orders to vendors and then the vendors ship the merchandise ordered
directly to the customer.
Drop-shipping has been used for years by companies that sell bulky products such as lumber, iron, and
petroleum, as well as catalog and mail- order companies.
Collaborating between Retailers and Vendors in Supply Chain Management
Bullwhip Effect - The built up inventory in an uncoordinated channel where retailer and vendors do not
coordinate their supply chain activities
What Causes a Bullwhip Effect?
• Delays in transmitting orders and receiving merchandise
• Over-reacting to shortages
• Ordering in batches rather than generating a number of small orders
Vendor Managed Inventory (VMI)
• Enables demand-based view of replenishment & production planning – reduce bull whip effect
• Manufacturing access to POS information
• Replenish automatically triggered
Radio Frequency Identification (RFID)
• Radio Frequency Identification allows an object or a person to be identified at a distance using
radio
• Reduces warehouse and distribution labor costs
• Reduces point of sale labor costs
• Inventory savings by reducing inventory errors
• Reduces theft – products can be tracked
• Reduces out of stock conditions
Impediment to the Adoption of RFID
• RFID is expensive – the return on investment is low
• It still only makes sense to put tags on pallets, cartons, expensive merchandise or high theft
items
• RFID generates more data than what can be currently processed
• Consumers worry about privacy invasion
