Retail Strategy

Anindo
“Tactics without strategy is the noise before defeat”
Sun Tzu

“Swim upstream, go the other way.

Ignore the conventional wisdom”
Sam Walton
 Retail Strategy and Planning
• Strategic planning in retailing is a complex process with a number of intertwined
factors, both controllable and uncontrollable

• A retail strategy is the overall plan or framework of action that guides a retailer.
Ideally, it will cover at least 1 year and outline the retailer’s mission, goals,
consumer market, overall and specific activities, and control mechanisms.
Elements of a
Retail Strategy
 Situation Analysis
• Situation analysis is a candid evaluation of the opportunities and
threats facing a prospective or existing retailer. It seeks to answer two
general questions: What is the firm’s current status? In which
direction should it be heading? Situation analysis means being guided
by an organizational mission, evaluating ownership and management
options, and outlining the goods/service category to be sold.
Three Decision points of Organizational Mission
1st Decision 2nd Decision 3rd Decision
Business Base Leader or Follower Market Scope
Whether to base a business Whether a retailer wants a Large chains often seek a broad
around the goods and place in the market as a customer base
services sold or around leader or a follower? Small Retailers or start-ups
consumer needs? focus on narrow customer base
 Objectives
• After situation analysis, a retailer sets objectives, the long-run and
short-run performance targets it hopes to attain. This helps in strategy
and translates the organizational mission into action.
• A firm can pursue goals related to one or more of these areas:
• Sales – Growth, Stability, Market Share
• Profit – Minimum profit, Return on Investment, Operating Efficiency
• Satisfaction of publics – Stockholders, Customers, Suppliers, Labor relations
• Image – Positioning map, Mass Merchandising, Niche Retailing, Bifurcated
Retailing
Selected Retail Positioning Strategies
Identification of Consumers
(Target Market Strategy)
 Overall Strategy
• A retailer develops an in-depth overall strategy. This involves two
components: the aspects of business the firm can directly affect and
those to which the retailer must adapt. The former are called
controllable variables, and the latter are called uncontrollable
variables
 Specific Activities
• Store location. Trading-area analysis gauges the area from which a firm draws its customers. The
level of competition in a trading area is studied regularly. Relationships with nearby retailers are
optimized. A chain carefully decides on the sites of new outlets. Facilities are actually built or
modified.
• Managing the business. There is a clear chain of command from managers to workers. An
organization structure is set into place. Personnel are hired, trained, and supervised. Financial
management tracks assets and liabilities. The budget is spent properly. Operations are systemized
and adjusted as required.
• Merchandise management and pricing. Assortments in departments and the space allotted to each
department require constant decisions. Innovative firms look for new merchandise and clear out
slow-moving items. Purchase terms are negotiated and suppliers sought. Selling prices reflect the
firm’s image and target market. Price ranges offer consumers some choice. Adaptation is needed to
respond to higher supplier prices and react to competitors’ prices.
• Communicating with the customer. The storefront and display windows, store layout, and
merchandise displays need regular attention. These elements help gain consumer enthusiasm,
present a fresh look, introduce new products, and reflect changing seasons. Ads are placed during
the proper time and in the proper media. The deployment of sales personnel varies by merchandise
category and season.
Retail Strategy Template
Wheel of Retailing
4 Principles of the Wheel of Retailing
• Many price-sensitive shoppers will trade customer services, wide
selections, and convenient locations for lower prices.
• Price-sensitive shoppers are often not loyal and will switch to retailers
with lower prices. In contrast, prestige-oriented customers enjoy
shopping at retailers with high-end strategies.
• New institutions are frequently able to have lower operating costs than
existing formats.
• As retailers move up the wheel, they typically do so to increase sales,
broaden the target market, and improve their image.
• For example, when traditional department store prices became too high for many consumers, the
growth of the full-line discount store (led by Walmart) was the result. The full-line discount store
stressed low prices because of such cost-cutting techniques as having a small sales force, situating
in lower-rent store locations, using inexpensive fixtures, emphasizing high stock turnover, and
accepting only cash or check payments for goods. Then, as full-line discount stores prospered,
they typically sought to move up a little along the wheel. This meant enlarging the sales force,
improving locations, upgrading fixtures, carrying a greater selection of merchandise, and
accepting credit. These improvements led to higher costs, which led to somewhat higher prices.
The wheel of retailing again came into play as newer discounters, such as off-price chains, factory
outlets, and permanent flea markets, expanded to satisfy the needs of the most price-conscious
consumer. More recently, we have witnessed the birth of discount Web retailers, some of which
have very low costs because they do not have “brick and mortar” facilities.
• The wheel of retailing suggests that established firms should be wary of adding services or
converting a strategy from low end to high end. Because price-conscious shoppers are not usually
loyal, they are apt to switch to lower-priced firms. Furthermore, retailers may then eliminate the
competitive advantages that initially led to profitability.
Retail Life Cycle Theory
• The retail life cycle concept states that retail institutions—like the goods and
services they sell— pass through identifiable life stages: introduction (early
growth), growth (accelerated development), maturity, and decline. The direction
and speed of institutional changes can be interpreted from this concept.
• During the first stage of the cycle, introduction, there is a strong departure from
the strategy mixes of existing retail institutions. A firm in this stage significantly
alters at least one element of the strategy mix from that of traditional
competitors. Sales and then profits often rise sharply for the first firms in the new
category. At this stage, long-run success is not assured. There are risks that new
institutions will not be accepted by shoppers, and there may be large initial losses
due to heavy investments.
Retail Life Cycle
• In the growth stage, both sales and profits exhibit rapid growth. Existing firms expand
geographically, and newer companies of the same type enter. Toward the end of
accelerated development, cost pressures (to cover a larger staff, a more complex
inventory system, and extensive controls) may begin to affect profits.
• The third stage of the retail life cycle, maturity, is characterized by slow sales growth for
the institutional type. Although overall sales may continue to go up, that rise is at a much
lower rate than during prior stages. Profit margins may have to be reduced to stimulate
purchases. Maturity is brought on by market saturation caused by the high number of
firms in an institutional format, competition from newer institutions, changing societal
interests, and inadequate management skills to lead mature or larger firms. Once
maturity is reached, the goal is to sustain it as long as possible and not to fall into decline.
• The final stage in the retail life cycle is decline, whereby industry wide sales and profits for
a format fall off, many firms abandon the format, and newer formats attract consumers
previously committed to that retailer type. In some cases, a decline may be hard or
almost impossible to reverse. In others, it may be avoided or postponed by repositioning
the institution.
Identifying and Understanding
Consumers
Retail Consumer Behavior
Consumer Decision Process
Impact of Perceived Risks on Consumers
Key factors that lead to the Purchase Act
LOCATION STRATEGIES
 Trading Area Analysis

The shaded portion represents the trading-area overlap, where the same customers are served by both branches. The chain must
look at the overall net increase in sales if it adds the proposed store (total revised sales of existing store + total sales of new store –
total previous sales of existing store).
Site Selection
Segments of a
Trading Area
Evaluating Retail Trading Areas
Factors, Gravity Models
Reilly's Law of Retail Gravitation
• It establishes a point of indifference between two cities or communities, so the trading area of each can be
determined. The point of indifference is the geographic breaking point between two cities (communities) at
which consumers are indifferent to shopping at either.
• According to Reilly’s law, more people go to a larger city or community because there are more stores; the
assortment makes travel time worthwhile. Reilly’s law rests on these assumptions: Two competing areas are
equally accessible from a major road, and retailers in the two areas are equally effective. Other factors (such
as population dispersion) are held constant or ignored.
• The law may be expressed algebraically as:
Example (Problem) for Reilly’s Law
• A city with a population of 90,000 (A) would draw people from three
times the distance as a city with 10,000 (B). If the cities are 20 miles
apart, the point of indifference for the larger city is 15 miles, and for
the smaller city, it is 5 miles:
Huff’s Law of Gravity (Shopper Attraction)
• Huff’s law of shopper attraction delineates trading areas on the basis of the product assortment (of the
items desired by the consumer) carried at various shopping locations, travel times from the shopper’s home
to alternative locations, and the sensitivity of the kind of shopping to travel time.
• Assortment is rated by the total square feet of selling space a retailer expects all firms in a shopping area to
allot to a product category. Sensitivity to the kind of shopping entails the trip’s purpose (restocking versus
shopping) and the type of good/service sought (such as clothing versus groceries).
• Huff’s law is expressed as:

Note that lambda must be determined through

research or by a computer program.
Example (Problem) for Huff’s Gravity
• Assume a leased department operator studies three possible locations with 200, 300, and 500
total square feet of store space allocated to men’s cologne (by all retailers in the areas). A group
of potential customers lives 7 minutes from the first location, 10 minutes from the second, and 15
minutes from the third. The operator estimates the effect of travel time to be 2. Therefore, the
probability of consumers’ shopping is 43.9 percent for Location 1, 32.2 percent for Location 2, and
23.9 percent for Location 3:

If 200 shoppers for men’s cologne live 7 minutes from Location 1, about 88 of them will shop there.
TYPES OF RETAIL LOCATION
The Isolated Store
• An isolated store is a freestanding retail outlet located on either a highway or
a street. There are no adjacent retailers with which this type of store shares
traffic.
• The advantages of this type of retail location are many:
• There is no competition in close proximity.
• Rental costs are relatively low.
• There is flexibility; no group rules affect operations, and larger space may be obtained.
• Isolation is good for stores involved in one-stop or convenience shopping.
• Better road and traffic visibility is possible.
• Facilities can be adapted to individual specifications.
• Easy parking can be arranged.
• Cost reductions are possible, leading to lower prices.
Example: Gas stations
• Gas stations often situate in locations where they are not adjacent to other retailers. Favorite spots include
side roads off major highways and corners of streets that have a lot of vehicular traffic. These gas stations
typically have a small convenience store (operated by the gas stations) on the premises.
The Unplanned Business District
• An Unplanned business district is a type of retail location where two or more stores situate together (or in
close proximity) in such a way that the total arrangement or mix of stores is not due to prior long-range
planning. Stores locate based on what is best for them, not the district. For example, four shoe stores may
exist in an area with no pharmacy.
• Central business district (CBD) is the hub of retailing in a city. It is synonymous with the term downtown. The
CBD exists where there is the greatest density of office buildings and stores. Both vehicular and pedestrian
traffic are very high. The core of a CBD is often no more than a square mile, with cultural and entertainment
facilities surrounding it. Shoppers are drawn from the whole urban area and include all ethnic groups and all
classes of people. The central business district has at least one major department store and a number of
specialty and convenience stores. The arrangement of stores follows no pre-set format; it depends on history
(first come, first located), retail trends, and luck.
Advantages and Disadvantages of CBD
ADVANTAGES DISADVANTAGES

• Excellent goods/service assortment • Inadequate parking, as well as traffic and delivery

congestion
• Access to public transportation
• Travel time for those living in the suburbs
• Variety of store types and positioning strategies
within one area • Frail condition of some cities—such as aging stores
—compared with their suburbs
• Wide range of prices
• Relatively poor image of central cities to some
• Variety of customer services
potential consumers
• High level of pedestrian traffic
• High rents and taxes for the most popular sites
• Nearness to commercial and social facilities
• Movement of some popular downtown stores to
suburban shopping centers
• Discontinuity of offerings (such as four shoe stores
and no pharmacy)
Business District and Pedestrian Traffic
Secondary Business District
• A secondary business district (SBD) is an unplanned shopping area in a city or town that is
usually bounded by the intersection of two major streets. Cities particularly larger ones—often
have multiple SBDs, each with at least a junior department store (a branch of a traditional
department store or a full-line discount store) and/or some larger specialty stores, besides many
smaller stores. This format is now more important because cities have “sprawled” over larger
geographic areas.
• The kinds of goods and services sold in an SBD mirror those in the CBD. However, a secondary
business district has smaller stores, less width and depth of merchandise assortment, and a
smaller trading area (consumers will not travel as far), and it sells a higher proportion of
convenience-oriented items.
• The SBD’s major strengths include a good product selection, access to thoroughfares and public
transportation, less crowding and more personal service than in a central business district, and
placement nearer to residential areas than a CBD.
Neighborhood Business District & Strings
• A neighborhood business district (NBD) is an unplanned shopping area that
appeals to the convenience shopping and service needs of a single residential
area. An NBD contains several small stores, such as a dry cleaner, a stationery
store, a barber shop and/or a beauty salon, a liquor store, and a restaurant.
The leading retailer tends to be a supermarket or a large drugstore. This type
of business district is situated on the major street(s) of its residential area.
• A string is an unplanned shopping area comprising a group of retail stores,
often with similar or compatible product lines, located along a street or
highway. There is little extension of shopping onto perpendicular streets. A
string may start with an isolated store, success then breeding competitors.
Car dealers, antique stores, and apparel retailers often situate in strings.
Planned Shopping Centre
• A planned shopping center consists of a group of architecturally unified
commercial establishments on a site that is centrally owned or managed,
designed and operated as a unit, based on balanced tenancy, and accompanied
by parking facilities. Its location, size, and mix of stores are related to the trading
area served.
• Through balanced tenancy, the stores in a planned shopping center complement
each other as to the quality and variety of their product offerings, and the kind
and number of stores are linked to overall population needs. To ensure balanced
tenancy, management of a planned center usually specifies the proportion of
total space for each kind of retailer, limits product lines that can be sold by every
store, and stipulates what kinds of firms can acquire unexpired leases.
Regional Shopping Centre
• A regional shopping center is a large, planned shopping facility appealing to a
geographically dispersed market. It has at least one or two department stores
(each with at least 100,000 square feet) and 40 to 125 or more smaller retailers.
• A regional center offers a very broad and deep assortment of shopping-oriented
goods and services intended to enhance the consumer’s visit.
• The market is 100,000+ people who live or work up to a 30-minute drive away. On
average, people travel under 20 minutes. A significant trend among regional
shopping centers is to add category killers as anchor tenants to replace closed
department stores.
• Some regional centers have become the social, cultural, and vocational focal point
of a suburban area. They may be used as a town plaza, a meeting place, a concert
hall, and a place for a brisk indoor walk.
Community Shopping Centre
• A community shopping center is a moderate-sized, planned shopping facility with
a branch department store (traditional or discount) and/or a category killer store,
as well as several smaller stores (similar to those in a neighborhood center).
• It offers a moderate assortment of shopping- and convenience-oriented goods
and services to consumers from one or more nearby, well-populated, residential
areas.
• About 20,000 to 100,000 people who live or work within a 10- to 20-minute drive
are served by this location.
Neighborhood Shopping Centre
• A neighborhood shopping center is a planned shopping facility, with the largest
store being a supermarket or a drugstore. Other retailers often include a bakery,
laundry, dry cleaner, stationery store, barbershop or beauty parlor, hardware
store, restaurant, liquor store, and gas station.
• This center focuses on convenience-oriented goods and services for people living
or working nearby.
• It serves 3,000 to 50,000 people who are within a 15-minute drive (usually less
than 10 minutes).
Questions on the TESCO Case
Video 1
Why the retail strategy of Tesco failed in the US market? What were the uncontrollable variables that
the retailer couldn't cope up with its controllable variables? And where it went wrong with its
controllable variables?
TESCO was Fresh & Easy brand in US. Why?
Why the other British retailers like Sainsbury and M&S also failed and exited the US market?

Video 2 & Guardian Article

How new TESCO CEO improved its understanding of the consumers and the uncontrollable factors
and worked upon the controlled factors to turnaround the company? Also refer to the Guardian article
along with the Video 2.

Question on the HBR article

Where did TESCO went wrong in its U.K. business against the competition posed by the discount
retailers Aldi and Asda; and what according to you retailers should do while maintaining their position
against steep competition posed by discount retailers?
https://www.theguardian.com/business/2019/oct/05/tesco-dave-lewis-back-from-brink-it-could-have-go
ne-under

https://www.youtube.com/watch?v=TIVy1iFePro 

https://hbr.org/2014/10/why-tescos-strengths-are-no-longer-good-enough 

https://www.youtube.com/watch?v=BGO0h3QH0Uw