Retail

Management
Chapter 3
Evaluating Retail
Competition

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.

 Learning Objectives
• Explain the various models of retail competition,
• Distinguish between various types of retail
competition,
• Describe the four theories used to explain the
evolution of retail competition,
• Describe the changes that could affect retail
competition,

Berman,
2 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Models of Retail Competition
• The Competitive Marketplace
• Market Structure
• The Demand Side of Retailing
• The Supply Side of Retailing
• The Profit-Maximizing Price
• Nonprice Decisions
• Competitive Actions

Berman,
3
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 The Competitive Marketplace

 While retailers typically compete for

customers on a local level, catalog and
electronic retailers compete at national and
international levels,

Berman,
4
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Market Structure
 Pure Competition
 Pure Monopoly
 Monopolistic Competition
 Oligopolistic Competition

Berman,
5
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Market Structure
 Pure Competition
Occurs when a market has homogenous products
and many buyers and sellers, all having perfect
knowledge of the market, and ease of entry for
both buyers and sellers,

Berman,
6
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Market Structure
 Pure Monopoly
Occurs when there is only one seller for a product
or service,
Pure monopoly exists when a single firm is the sole producer of a product
for which there are no close substitutes. Examples are public utilities and
professional sports leagues, Characteristics :
1. A single seller: the firm and industry are synonymous,
2. Unique product: no close substitutes for the firm’s product,
3. The firm is the price maker: the firm has considerable control over the
price because it can control the quantity supplied,
4. Entry or exit is blocked,

Berman,
7
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Market Structure
 Monopolistic Competition
Occurs when the products offered are different,
yet viewed as substitutable for each other and the
sellers recognize that they compete with sellers of
these different products,

Berman,
8
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Market Structure
 Oligopolistic Competition
Occurs when relatively few sellers, or many small
firms who follow the lead of a few larger firms,
offer essentially homogeneous products and any
action by one seller is expected to be noticed and
reacted to by the other sellers,

Berman,
9
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
The Demand Side of Retailing
Demand as a Function of Price
Price

Quantity Demanded
Berman,
10
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
The Supply Side of Retailing
Fixed Costs
Dollars

Unit Sales Quantity or Sales Volume

Berman,
11
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
The Supply Side of Retailing
Variable Costs
Dollars

Unit Sales Quantity or Sales Volume

Berman,
12
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
The Supply Side of Retailing
Total Costs
Dollars

Unit Sales Quantity or Sales Volume

Berman,
13
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 The Profit-Maximizing Price
• A profit-maximizing price seeks to get
as much profit as possible from the sale
of each unit.

Berman,
14
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Non price Decisions
• Nonprice competition strategies
• Position itself as different from the
competition by altering its merchandise mix
to offer higher quality goods, great personal
service, etc,
• Offering private label merchandise,
• Provide free services or products, such as
free gas to out of town customers,
• Strive to always have basic merchandise in
stock,
Berman,
15
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Non price Decisions
• Store Positioning
Is when a retailer identifies or lifestyle
variables and appeals to this segment with
a clearly a well-defined market segment
using demographic differentiated approach,

Berman,
16 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
Non price Decisions: Private Labels of
M a jor Re t a ile rs
• Kmart: Joe Boxer, Martha Stewart Everyday,
Disney
• Sears apparel brands: Apostrophe, TKS,
Land’s End
• JC Penny :St. John’s Bay, Arizona, Stafford
• Wal-Mart: Equate, Simply Basic, Great Value
• Target: Cherokee, Honors, Furio
• Saks Fifth Avenue: 5/48, Real Clothes, SFA
Collections
• Federated Department Stores: I.N.C., Alfani, Green
Dog
• Nordstrom: BP, Halogen, Studio 121
• Lord and Taylor: Katie Hill, Context, Identity

Berman,
17
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Competitive Actions
 Competitive activity can be examined by the
number of retail establishments of a given
type per thousand households

Berman,
18
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Competitive Actions
• Overstored
Is a condition in a community where the
number of stores in relation to households is so
large that to engage in retailing is usually
unprofitable or marginally profitable,
• Understored
Is a condition in a community where the
number of stores in relation to households is
relatively low so that engaging in retailing is an
attractive economic endeavor,
Berman,
19
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Types of Competition
• Intratype Competition
Occurs when two or more retailers of the same
type as defined by NAICS codes in the Census
of Retail Trade, compete directly with each other
for the same households,
• Intertype Competition
Occurs when two or more retailers of a different
type, as defined by NAICS codes in the Census
of Retail Trade, compete directly by attempting
to sell the same merchandise lines to the same
households,

Berman,
20
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Intratype and Intertype Competition

• Intratype competition for musics,

Berman,
21
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Intratype and Intertype Competition
 Intertype competition for electronic
appliances,

Berman,
22
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Intratype and Intertype Competition
Intertype Competition

Supermarkets offering
Home Meal
Replacements (HMR)
compete with fast-food McDonald’s
restaurants

Albertsons Food Giant

Supermarket Supermarket

Intratype Competition

Berman,
23 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Types of Competition
 Divertive Competition
Occurs when retailers intercept or divert
customers from competing retailers.
• Shop at once
• Wider selction of product line
• Customer will keep coming back
• Additional facility : gas station,
pharmacy, salon, atm, clinics
. (Dunne, P., Griffith, D., Lusch, R., Retailing, Ed. 4, 2002, Pg. 118).

Berman,
24
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
A retailer may be categorized by its strategy
mix, the firm’s particular combination of :
 Store location
 Operating procedures
 Goods/service offered
 Pricing tactics
 Store atmosphere
 Customer service and
 Promotion method
Berman,
25 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
• The Wheel of Retailing
• The Retail Accordion
• The Scrambled Merchandising
• Retail Life Cycle

Berman,
26 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
• The Wheel of Retailing Theory
Describes how new types of retailers enter
the market as low-status, low-margin, low-
price operators; however, as they meet with
success, these new retailers gradually
acquire more sophisticated and elaborate
facilities, and thus become vulnerable to
new types of low-margin retail competitors
who progress through the same patter.
Berman,
27
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
• The Wheel of Retailing Theory
Retail innovators often first appear as low price
operators with low costs and low profit margin
requirements. Over time the innnovators upgrade
the products they carry and improve their facilities
and customer service (by adding better quality
items, locating in higher-rent sites, providing credit
and delivery, and so on), and price rise
(Berman;Pearson)

Berman,
28
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
• The Wheel of Retailing Theory
is grounded on 4 principles :
• Price sensitive shoppers will trade customer service, wide
selection and convenient location for lower price
• Price sensitive shoppers are not loyal and will switch to
retailer with lower price
• New institution often have low operating cost than existing
ones
• As retailers move up the wheels, the sales will increase,
expanding target market and better image

Berman,
29
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix

The Wheel of Retailing Theory

Berman,
30
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
Wheel of Retailing
 Some would argue that
McDonald’s has become a
victim of the wheel of
retailing. When
McDonald’s started out, it
served a select menu.
Over the years, the
McDonald’s product
offering has expanded to
the inclusion of
playgrounds, thus opening
the way for new, low-cost
fast-food providers, such as
Checkers.
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.31
 Consideration in Planning a Retail
Strategy Mix
 Retail Accordion
Describes how retail institutions evolve from
outlets that offer wide assortments to
specialized stores and continue repeatedly
through the pattern.

Berman,
32
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
The Retail Accordion
Wide Assortment

Time Narrow
Assortment

Wide Assortment
Berman,
33
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
Scrambled Merchandising
Whereas the wheel of retailing focus on product
quality, prices and customer service, scramble
merchandising involves a retailer increasing its
width of assortment (the number of different
product lines carried),

Scrambled merchandising occurs when a retailer

add goods and services that may be unrelated to
each other and to the firm’s original businesses

Berman,
34
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
Scrambled Merchandising

Shoes Slippers

Original
merchandise
mix Rubber
Socks galoshes

Shoe polish Sandals

Berman,
35 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
Scrambled Merchandising
Slippers
Handbags
Shoes
Belts
Scrambled
merchandise Umbrella
Socks mix , hats,
scarves

Shoe Sweater
polish

Sandals Gloves
Rubber
galoshes
Berman,
36 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
 Retail Life Cycle
Describes four distinct stages that a
retail institution progresses through:
Introduction
Growth
Maturity
Decline

Berman,
37 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
T he Re t a il Life Cycle

 Introduction
Begins with an aggressive, bold entrepreneur who is
willing and able to develop a different approach to
retailing of certain products. During this stage profits
are low, despite increasing sales levels.

Berman,
38
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
T he Re t a il Life Cycle

 Growth
Sales and profits explode, validating the
entrepreneur’s good idea. New retailers enter the
market and begin to copy the retailers idea. Late
in this stage both market share and profitability
approach their maximum levels.

Berman,
39
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
T he Re t a il Life Cycle
 Maturity
Market share stabilizes and profits decline
because:
• managers use to managing simple small
retail outlets must now manage large
complex firms,
• industry has overexpanded, and
• competitive assaults by new retail
formats.
Berman,
40
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
T he Re t a il Life Cycle

 Decline
The once promising idea is no longer needed in
the marketplace. As a result, market share and
profits fall

Berman,
41
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Consideration in Planning a Retail
Strategy Mix
T he Re t a il Life
Cycle

Introduction Growth Maturity Decline

E-tailing Food Courts Warehouse Variety Stores
(1990’s) (1980’s) clubs(1970’s) (1890’s)
Recyclers Airport-based Department stores Factory outlet
(2000’s) retailers (1860’s) malls (1970’s)
(1980’s) Supermarkets (1930’s) Department
Supercenters Convenience stores stores (2000’s)
(2000’s) (1960’s)
Category killers (1970’s)
Fast food (2000’s’)
Berman,
42 B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 How retail institution are evolving
Mergers, diversification and downsizing
Merger involve the conbination of separately owned
retail firms,
Some mergers take place between retailers of
different types, such as Sears (Dept Store) with K-
Mart (discount store)
Could occur also to same typer of retailer such
Continent & Carrefour (Indonesia case)

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.

 How retail institution are evolving
Mergers, diversification and downsizing
Diversification makes retailer becoming active in businesses
outside their normal operations, and add stores in different
goods/service categories,
Case :
McDonalds : Mc breakfast, Mc Cafe
KFC : KFC breakfast, KFC Cafe
Dunkin : Dunkin breakfast
Alfa Midi / Express
Giant Extra / Express etc

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.

 How retail institution are evolving
Mergers, diversification and downsizing
Downsizing – whereby unprofitable stores are closed or
division are sold off – by retailers unhappy with
performance.

Case :
Petronas gas station
Harvey Nichols
Banks : BDNI, Century, Bank Bali

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.

 Retail institution categorized by store
based strategy mix
Food oriented retailers
Configured by :
 Convenience store : 7 Eleven, Lawson, circle K
 Conventional supermarket
 Food based super stores
 Combination stores
 Box (limited line) store
 Warehouse store
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Retail institution categorized by store
based strategy mix
Configured by : General merchandise retailers
 Specialty store : toys ‘r’ us, informa, index
 Traditional department store
 Full line discount store
 Variety store
 Off price chain : ramayana, robinson
 Factory outlet
 Membership club : Fitness first, gold gym, mercantile
 Flea market : pasar modern
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Web, Nonstore based and other form
of non traditional retailing
Direct marketing
Divided by :
 General direct marketing,
Offer a full line of products and sell everything from
clothing to housewares
 Specialty direct marketing,
Focusing on narrow product lines

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.

 Web, Nonstore based and other form
of non traditional retailing
Direct marketing
Advantages :
 Many costs are reduces
 Lower prices
 Customers be convenient
 Segmented clearly
 Tax free
 Expand trading area
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Web, Nonstore based and other form
of non traditional retailing
Direct marketing
Disadvantages :
 Product can not be examined before purchase
 Expensive infrastructure costs
 Below 10% recipients catalog doing purchase
 Trash catalogue residual
 Printed catalogue, can’t change price and style
mode
 Delivery delay and shoddy goods
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Web, Nonstore based and other form
of non traditional retailing
Direct marketing
Emerging trends :
 Evolving activities f direct marketers
 Changing consumer life style
 Increase competition among firms
 Greater use of multi channel retailing
 Newer roles for catalogue and TV
 Technological advances

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.

 Web, Nonstore based and other form
of non traditional retailing
Direct marketing
Steps in Direct Marketing Strategy :
 Generating customers
 Media selection
 Presenting the message
 Customer contact
 Customer response
 Order fulfillment
 Measuring result and maintaining the database
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Web, Nonstore based and other form of
non traditional retailing
Direct selling
Factors influence slow growth of direct selling :
 More women work
 Improved job opportunity
 Market coverage limited
 Low sales productivity
 High sales force turn over
 High commission
 Legal restriction
 Poor image of door to door selling
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Web, Nonstore based and other form
of non traditional retailing
Non traditional forms of retailing
 Video Kiosks
 Airport retailing,
distinctive features :
 20 mio people passing through vs mall traffic 5 mio
 Above average income
 Sales per square foot higher than mall
 Smaller store, higher price, higher profit
 Longer store opening hours
 Duty free shoppers around
Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail
Competition
• Nonstore Retailing
• New Retail Formats
• Heightened Global Competition
• Integration of Technology
• Increased use of Private Labels

Berman,
55
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition
• Nonstore Retailing
 Direct selling Direct
 Catalog sales Selling
 E-tailing

Catalog
Sales E-tailing

56
 Future Changes in Retail Competition

New Retail Formats

 Off price retailer Supercenters
 Supercenters
 Recycled Merchandise
Retailers
 Liquidators Recycled
Merchandise Liquidators
Retailers

Berman,
57
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition
N e w Re t a il For m at s
 Off-price Retailers
Sell products at a discount but do not carry certain
brands on a continuous basis. They carry those
brands they can buy from manufacturers at
closeout or deep one-time discount prices.

Berman,
58
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition

N e w Re t a il For m at s
 Supercenters
Combine a discount store and grocery store to
carry 80,000 to 100,000 products in order to offer
one-stop shopping.

Berman,
59
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition
N e w Re t a il For m at s
 Recycled Merchandise Retailers
Are establishments that sell used and
reconditioned products.

Berman,
60
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition
N e w Re t a il For m at s
 Liquidators
Liquidates leftover merchandise when an
established retailer shuts down or downsizes.

Berman,
61
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Leading U.S. Retailers by Sales
$200B

$30B
$10B Sears

$5B Wal-Mart

$800M K-Mart
A&P
$500M
$200M

1900 ’20 ’30 ’40 ’50 ’60 ’70 ’80 ’90 2000

Berman,
62
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 The Relationship of Price Versus
Nonprice Actions and Demand Curve
Price Price
D2
D1

Quantity Quantity
Non-price Actions seek
Pricing Actions move to shift the demand
the consumer up and curve to right and make
down the current it more inelastic.
demand curve.
Berman,
63
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition
 Heightened Global Competition
 Increasing Rate of Change
 Greater Diversity
 Creation of New Retail Formats

Berman,
64
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition

 Integration of Technology
 Supply Chain Management,
 Customer Management,
 Customer Satisfaction,

Berman,
65
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail
Competition
 Increasing Use of Private Labels
 Helps in protecting retailer niche
 Sets retailer apart from competition

Berman,
66
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition

 JCPenney has built

significant store
loyalty through the
introduction and
development of the
private label brand
Arizona Jeans Co.

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.67

 Question to Ponder
• Should retailers advertise the fact that
they are the owners of the private label
brand(s) they sell?
• Harmonie – Carrefour private label for clothing
• Blue Sky – Carrefour private label for small
appliance
• First Choice – Hero/Giant group private label for
food products
• 365 – Superindo private label for all products

Berman,
68
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition
Private Label Branding Strategies
• Developing a partnership with well-known
celebrities, noted experts, and institutional
authorities
• Developing a partnership with traditionally higher-
end suppliers to bring an exclusive variation on their
highly regarded brand name to the market
• Reintroducing products with strong name
recognition that have fallen from the retail scene
• Branding entire department or business; not just a
product line
Berman,
69
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Market Structure

Monopolistic Pure
Competition Competition

Retail
Competition

Oligopolistic Pure
Competition Monopoly

Berman,
70
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Future Changes in Retail Competition

Nonstore New Retail

Retailing Formats

Heightened
Integration of
Global
Technology
Competition
Increased use
of Private Labels

Berman,
71
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
Future Changes in Retail Competition:
H e ight e ne d Globa l Com pe t it ion

Increased
Rate of
Change

Greater Creation of
Diversity New Retail
Formats

Berman,
72
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
Future Changes in Retail Competition:
I nt e grat ion of Te chnology

Supply Chain
Management

Customer Customer
Management Satisfaction

Berman,
73
B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.
 Thank You

Berman, B. and Evans, J.R. (2010),”Retail Management : A Strategic Approach”, Pearson.