Running head: PRINCIPLES OF RETAILING

Principles of Retailing An Assignment Submitted by Name of Student Name of Establishment Class XXXX, Section XXXX, Fall 2012

PRINCIPLES OF RETAILING Principles of Retailing This paper is designed to analyze two retail stores in Dearborn, MI: Wal-Mart Supercenter and Target in the following two segments of their operation: womens wear and mens wear. The paper is structured to cover each retailers history of operation; target markets; major competitors; store building analysis such as physical set-up and trading area; promotional techniques such as advertising and public relations, management practices such as organizational structure, hiring criteria and training programs; selling methods; customer services offered. The paper aims to analyze and compare overall retail strategies of the two companies in terms of their effectiveness and appeal to the target customer. The paper is organized as follows. First of all, it presents retail strategy of Wal-Mart Supercenter. Secondly, retail strategy of Target is presented. Finally, two retail strategies are compared and analyzed. Wal-Mart Supercenter Retail Strategy 1. History of operation Wal-Mart is known to be one of the most well-known success stories in the history of retailing. Founded in 1945 by Sam Walton, Wal-Mart is currently occupying second position on Forbes Sales list and ranks 16th in Forbes Global. In fiscal 2011 year Wal-Mart generated 19.2% return on invested capital (compared to 19.3% in 2010 and 19.3% in 2009, Wal-Mart, 2012). According to the companys annual report (Wal-Mart, 2012), Wal-Mart operates in three segments: U.S. segment (accounting for $260 billion in sales in FY 2011), Wal-Mart International (accounting for $109 billion in sales in FY 2011) and Sams Club ($49 billion). Wal-Mart has approximately 8,900 stores around the globe and employs approximately 2.2 million people. Thus, Wal-Mart is a large and

PRINCIPLES OF RETAILING profitable company. Still, while some four years ago Wal-Mart outperformed its key rivals such as Target or Costco, currently the company is faced with new challenges: a slowly recovering economy, upcoming elections, and threats from smaller stores (which force the company to open new stores in smaller convenient formats, Banjo, 2012) accompanied by lower than expected growth overseas. Wal-Mart pursues an aggressive growth strategy that is based on expanding store areas and creating infrastructure around its stores. Before analyzing Wal-Marts target customers, it is useful to analyze the companys competitive advantage. The company based its business model upon selling branded products at low prices. Besides, the company set a goal to become an ultimate shopping destination offering groceries, mens wear, womens apparel, kids clothing, cosmetic products and household products under one roof. Typically, a Wal-Mart store also offers numerous additional customer services. One of the revolutionary ideas introduced by Walton that transformed the world of retailing was Wal-Marts self-service system: by 1960 when Walton had 15 stores in Arkansas and Missouri the new system was widely employed to benefit customers and owners (Levy et al., 2011). According to Hill et al. (2008), Wal-Mart pursued a location strategy that was dramatically different from those of its key competitors such as Target or Kmart. While the former focused on urban areas and suburban locations, Wal-Mart marched through small-town America, having genuinely transformed it (Levy et al., 2011). In order to achieve its high growth targets, Wal-Mart priced lower than local retailers. Besides, by the time its key competitors understood that small towns can support a large discount store it became evident that there could only be one such store,

PRINCIPLES OF RETAILING and this store happened to be Wal-Mart. After launching Sams Club, Walton began building Supercenters (such as the store in Dearborn): large stores that ranged from 100,000 to 200,000 square feet that had a supermarket and a regular Wal-Mart under one roof (Levy et al., 2011). Another innovation introduced by Wal-Mart was extensive usage of information technology in retailing. The company employed bar code technology and checkout scanners to track merchandise. This allowed the company to avoid overstocking and adjust inventory in the store so that it matched local preferences and demand. Therefore, Wal-Mart was capable of reducing the costs of keeping inventory in stores using the space for merchandise instead. 2. Retailer classification Wal-Mart Supercenter in Dearborn, MI, belongs to Wal-Marts retail chain. It is referred to as a discount store in terms of the type of merchandise offered. A supercenter is differentiated from a supermarket or a hypermarket due to the fact that it offers both groceries and general merchandise. When Wal-Mart was constructing hypermarkets, the model was based on stocking 40% of the sales area with groceries and 60% of the sales area with general merchandise. In a supercenter, 80% of the customers shop both sides of the store. The concept of a supercenter is based upon the assumption that groceries would generate traffic and attract customers to buy higher margin items. Wal-Marts Supercenter in Dearborn is a sole proprietorship. 3. Target customers Wal-Marts target customers live in states that have more rural areas compared to the rest of the country and have lower median income than the rest of the United States

PRINCIPLES OF RETAILING (The Economist, 2006). Wal-Mart targets three major customer groups: Price-Value Shoppers, Brand Aspirational Shoppers, and Price-Sensitive Affluent Shoppers. PriceValue shoppers are poor and loyal to Wal-Mart since the discount store offers low prices. This group is primary comprised of rural young females that have little or no education beyond high school. Those customers drive used vehicles and show no affection for particular brands as long as items are priced low. Brand Aspirational Shoppers are less technologically savvy than other two groups. Those shoppers are affected by the appearance of merchandise rather than its quality. Those customers have affection for sports. Finally, Price-Sensitive Affluent Shoppers represent the highest income category. This customer segment is primarily comprised of white males aged over 45 who are highly educated. This customer group is very technologically savvy: customers compare prices over the Internet and seek for best deals. Dearborn, MI, is among cities where WalMart has the most of its Price-Value shoppers: with 16% of the population being below the poverty line and median income being $44,560 per household, the city has a per capita income of $21,488. This suggests careful location selection performed by a retailer. However, Dearborn is also a fairly big city with a population of approximately 99,000. 4. Major competition It should be noted that due to scrambled merchandise, intratype competition is increased. Levy et al. (2011) define intratype competition as competition between retailers that sell similar merchandise using different formats, such as discount and department stores. Therefore, it is useful to analyze not only competitors that are operating in the same category (such as Walgreens and Target) but also companies that

PRINCIPLES OF RETAILING operate in nearby locations. Primary merchandise categories and potential competition areas for Wal-Mart Supercenter in Dearborn include groceries, pharmaceutical products, mens and womens wear as well as garden and other household products. Located in Mercury Drive, Dearborn, MI, Wal-Mart Supercenter has competitors in several categories. First of all, it is important to analyze competitors that offer a similar set of products. There are several competitors that offer groceries at low prices: Big Lots (located in 5600 Mercury Drive), Super Greenland Market (located in West Warren Avenue), Kroger (located in Michigan Avenue and in multiple other locations), as well as Family Dollar. All those retailers offer a similar set of groceries and attract customers due to their low prices. As far as pharmaceutical products are concerned, Wal-Mart pharmacy is competed by Target, located nearby, Rite Aid in Schaefer Road, Walgreens Store Dearborn in Michigan Avenue, West Village Pharmacy and CVS Pharmacy. It should be noted that those stores are located close to each other and the customer has a choice where to go. There are competitors in the womens and mens wear as well. For example, Fairlane Town Center hosts a galore of retail stores that offer products in this segment. Due to target customer analysis performed above it should be stated that major competitors that target similar customer groups also located in Dearborn include Target (the analysis of which is provided below), Walgreens and Kmart. All three are classified as discount retailers. However, Wal-Mart is differentiated from them due to the fact that it offers high margin products (such as clothing or consumer electronics). Besides, unlike other stores Wal-Marts operating hours in Dearborn start at 6.00 am; the store clothes at 11:30 pm. This gives the store an opportunity to become a shopping place for early and late customers.

PRINCIPLES OF RETAILING 5. Store building analysis a. Physical settings and store appearance Wal-Mart Supercenter in Dearborn was opened in a rebuilt and renovated Super Kmart building. The building looks old and deteriorated. The building is rather large; however, it is not managed efficiently. The interior of the store leaves unpleasant impressions. The store is not cleaned regularly and there are more security guards than there are cashiers: multiple customer complaints arrive due to long lines (it requires 30 to 45 minutes to get through a line). Besides, multiple additional facilities such as bathrooms (that typically lack soap or towels) or water tanks are out of service. Merchandise is unevenly located on the shelves and it is rarely checked for missing items or items that have to be filled. Many merchandise stands lack price tags or display them incorrectly which results in customer dissatisfaction. b. Location analysis Wal-Mart Supercenter is located in Fairlane North Shopping Center at 5851 Mercury Drive. It is not far from the two major arteries of the city: Ford Rd. and Southfield Fwy. It is also across the road from Home Depot. Additionally, there is a Target in North Fairlane (thus, direct competitors are in close proximity). The store is located not far from one of the citys major shopping centers: Fairlane Town Center. The area is serviced by public transport. Wal-Mart Supercenter operates its own parking space; however, it is almost always filled with litter and leaves an unpleasant impression. Besides, due to certain reasons Wal-Marts parking lot is carefully watched by local police who in many occasions have their car parked upfront. 6. Promotional techniques

PRINCIPLES OF RETAILING Wal-Mart employs a wide variety of promotional techniques that include television advertising, newspaper and radio advertising as well as active usage of coupons and booklets that feature daily, weekly and monthly discounts and sales. Additionally, WalMart employs in-store promotions through product bundling. One of the distinct features of Wal-Marts promotional mix is its active usage of public relations. The company takes part in charity events and positions itself as a community-based company that caters for the needs of the local community through blending itself with its life and needs. Such engagement is justified through the fact that Wal-Mart is Americas largest employer. 7. Methods of management Prior to analyzing approaches to human resources taken in Wal-Mart, it is essential to analyze control systems and general managerial principles employed by the company. Management system of Wal-Mart is based on per-store evaluation that is based upon profits relative to inventory investments. Wal-Mart collects store data that is divided into sales, expenses, as well as profits and losses. Data is analyzed per region, or even department within a store; thus, the company can keep close attention on crucial business data. Wal-Mart addresses specific issues like pilferage through introducing financial incentives to its employees (for example, decreased pilferage would result in greater employee bonuses). Other specific incentive programs include motivational programs that are targeted at selecting best employees (for Wal-Mart, its employees are named associates) in their specific categories. Additionally, Wal-Mart started a profit sharing scheme in 1971 for its associates based upon their loyalty and tenure. Other employee motivation programs include discount stock purchase programs, incentive bonuses, and payment increases based upon performance.

PRINCIPLES OF RETAILING 8. Selling methods Wal-Mart has two major selling channels. One of them is selling through its retail stores like the one Dearborn. Another channel includes Wal-Mart online store that offers additional discounts for online purchases and allows customers to view weekly and daily discounts as well as manage their customer account. 9. Customer services offered Wal-Mart in Dearborn offers its customers the following services: pharmacy, one-hour photo, garden center, cell phone plans, same day pickup photo, and vision center.

PRINCIPLES OF RETAILING Target Retail Strategy 1. History of operation Target Corporation that operates Target retail stores has its history dating back to 1902 when George Dayton started Dayton Corporation in Minneapolis. Having survived the Great Depression and World War II primarily due to the ability to fill the shelves with scarce goods, the company opened its first retail discount store in 1962 naming it Target and locating it in the suburbs of Minneapolis. The concept on which Target stores were based was the following: selling national high-quality brands at low prices. In 1969 the company acquired another national department store chain, J.L. Hudson, which allowed the company to become nations 7th largest retailer. By 1979 Target stores were the companys largest source of revenue. In 1990 the company acquired Marshall Fields. Since the corporation was also operating a department stores division, this allowed the company to follow fashion trends and pass them along to Target stores. In 1990 Target started to open Target Greatland stores while in 1995 SuperTargets were introduced (SuperTargets also sell groceries). The company launched Target store website back in 2000 when popularity of online selling was rather low. In 2000 Dayton Hudson Corporation became officially known as Target Corporation. Currently, Target ranks 38th on Fortune 500 list of Americas largest corporations and according to Fortune 500 is also Americas second largest retail store after Wal-Mart. Target ranked 25th on Fortunes Most Admired Companies list of 2012. From the beginning, Targets strategy was based upon positioning itself as a mass merchant that was selling stylish yet affordable goods. According to Targets 2011 annual report, at present the stores merchandise mix can be presented as follows: 25% is

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PRINCIPLES OF RETAILING comprised of household essentials, 19% of such items as consumer electronics (hardlines), 19% apparel and accessories, 19% is comprised of food and pet supplies, and 18% of home furnishings and decoration. Target distinguishes itself from other retail stores through offering more high style products. Target concentrates not only upon price competition but also on merchandise and brand mix that is comprised of hip and stylish branded items. While offering high quality branded items, the major share of Targets revenue derives from sales of competitively priced everyday items. 2. Retailer classification Target in Dearborn belongs to Target Corporations retail chain. It can simultaneously be classified as a department store and a discount store. On the one hand, through offering general merchandise (such as branded items) the store falls into the department store category. On the other hand, through pursuing a low price policy the retailer can be classified as a discount store. 3. Target customers Unlike Wal-Mart that primarily targets low-income rural customers, a typical Target customer is on average young, has education beyond high school and affluent. Target relies heavily on customer loyalty and 20% of its customers are highly loyal to shopping at Target. According to Target, the typical customer (referred to as guest) is female (60.1% of Targets customers are females) with a median age of 25-34, a median household income of $50,000 to $75,000, college education and children. Additionally, according to Carmichael (2012), 53.8% of Targets customers are married. With the majority of guests under age of 40 and in the middle to upper income range, customers are not very price-sensitive: rather, they prefer shopping in a place where their friends

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PRINCIPLES OF RETAILING and family shop. Additionally, they are very sensitive to customer service and customer treatment. Thus, Target occupies a niche of an upscale discounter that serves its specific market. 4. Major competition Similarly to Wal-Mart Supercenter in Dearborn, Target faces intratype competition that arises from the variety of products offered. Apart from facing competition from discount stores in Dearborn, Target is also facing competition from department stores such as Sears in Fairlane Town Centr. Some of Targets competitors in Dearborn include WalMart Supercenter, Best Buy (in consumer electronics category), The Home Depot, Marshalls, and Fairlane Town Center that hosts a galore of retail stores that offer brandnamed merchandise. While being formally included into the discount store niche, Target occupies its strong share of the market and differentiates itself from discounters through higher prices and higher quality of merchandise. 5. Store building analysis c. Physical settings and store appearance Target differentiates itself from standard big box retailers by building stores that are more attractive and appealing than, for example, typical buildings of its competitors. Target in Dearborn, MI, leaves a pleasant impression of a comfortable building with a clean parking lot and well-utilized space. The interior of the store is designed to incorporate bigger and wider aisles than in Wal-Mart as well as drop ceilings and a color scheme that is intended to differentiate merchandise groups while being comforting at the same time. Besides, by employing lighter colors and specific lighting Target aims to position itself as an upscale store. By having wide aisles Target has a good presentation of merchandise.

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PRINCIPLES OF RETAILING Additionally, shelves are designed to have the majority of merchandise on display within eye-reach; shelves are also decorated and have announcements concerning price deals on display as well. However, there are certain problems with Targets interior in Dearborn. For example, the store has long lines that result from insufficient amount of check-out stands, and price tags are frequently missing from items, especially in the consumer electronics section. d. Location analysis Located in Ford Rd., Target store enjoys the location: Ford Rd. is the citys primary transport artery. However, the store is located in close proximity to its major competitors such as Best Buy, Wal-Mart Supercenter and Fairlane Town Center. The location is serviced by public transport. Generally, it should be stated that the chosen location is convenient for shoppers although may be problematic due to close proximity of competitors. 6. Promotional techniques In its promotional campaigns Target widely employs the slogan Pay Less and Expect More that is designed to differentiate it from its competition. Additionally, Target widely applies its bull-eye logo that is recognized by 96% of consumers. Targets promotional techniques include newspaper, television and radio advertising that allow the company to reach a large audience. Target heavily invests in newspaper advertising to feature its weekly deals. Target also uses its website to promote its products. The website is also a source of promotional coupons, Targets mobile applications with additional options, and frequently features additional customer bonuses such as free shipping. Other promotional methods include extended hours during holidays and promotional pricing for

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PRINCIPLES OF RETAILING highly demanded items. Target also employs bundled pricing. Target features private label designers in its commercials. This creates a competitive advantage for the company since designers products are sold only through Target chain. Since Target features weekly discounts and clearance items change weekly, this gives customers an incentive to return to the store. Thus, the popularity of Target is also based upon strategies of differentiation. This is why consumers perceive Targets products as more chic and even sometimes pronounce the name of the store in a French manner. 7. Methods of management Targets annual report (2012) acknowledges the necessity for improving relations with the companys employees in terms of investing in their performance. The company states that it cooperates with Targets team members through introducing a variety of educational and training programs that are aimed at recognizing diversity in the workplace, improving opportunities for talented workers as well as cooperating with local communities. Target provides additional services, resource and benefit programs that are catered to its employees current and future needs. These programs include health insurance (for employees and their families including dependents), team member discounts, and benefits that are otherwise similar to Family Medical Leave Act. Apart from that, Target continuously introduces programs that are designed to develop talent and improve leadership skills. 8. Selling methods Apart from traditional retail model of selling, Target also operates a website that allows its consumers investigate available information, browse through the store and conduct purchases online. Since more economically affluent customers also appear to be more

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PRINCIPLES OF RETAILING technologically savvy, this feature allows customers to compare goods that are sold at Target to items sold by other retailers as well as compare prices. This also allows clients to review items. The companys website is a good source of information on the business and allows Target to communicate the companys policies, promotions, clearance and discounts to its clients. Additionally, Target places information on community-oriented projects online. By shopping on Target website, clients that have a Visa credit card are granted a 10% discount on their purchases not only online but also in the store. 9. Customer services offered Similarly to Wal-Mart, Target also offers one-hour photo services with an opportunity to view photographs online through consumer account and additionally operates a pharmacy. Apart from that, Target provides its customers with additional services that allow clients to make better decisions. Target has a well-designed post-purchase service program that allows customers to return most items within 90 days of purchase with no charge renewal of damaged or defective products. Another service that Target operates specifically for couples is the Club Wedd and Target Baby Registry. This service is designed for those who are willing to give a gift to those who need it. Target also operates in-store clinics. Target and Wal-Marts Retail Strategies Compared While both companies are classified as big-box retailers, there are significant differences and similarities between Wal-Marts and Targets retail strategies. Both companies are similar in a way that they are aimed at operating in rural communities and represent the low-price segment of the market. Both companies offer a similar set of merchandise. However, unlike Wal-Mart Supercenter that offers clients a full spectrum of

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PRINCIPLES OF RETAILING groceries, Target only sells packaged food. Both companies operate in Dearborn as sole proprietorships. Both companies provide numerous additional services such as one-hour photo and pharmacy. Return policies of the two retailers are similar: it is possible to return almost any item within 90 days of purchase and damaged items are replaced without additional compensation. Both stores are part of a national retail chain. Both companies face intratype competition rather than direct competition. Finally, both stores in Dearborn are located in close proximity to each other and to competitors. Sadly, both companies are widely criticized for their employment practices. In particular, Wal-Mart is criticized for its low wages while Target received critique for underrepresentation of minorities Differences in Wal-Marts and Targets retail strategy are based on differences in brand positioning of each company. Brand positioning should best be understood as getting target customers to see the company as the only solution to their unique problems. Thus, differences in brand positioning stem from the choice of the target market for both companies. Wal-Mart primarily targets customers that have low income (below $30,000) while Target aims at the more affluent segment. Among Wal-Marts target customers, brand-conscious affluent educated clients represent only a fraction while Target makes those clients their primary market. Target positions itself as a retailer that delivers higher quality goods for low prices while Wal-Mart pursues primarily a low-price strategy. Being in the upper end of the discount store echelon allowed Target to be a better shopping experience for customers in search of branded goods before the recession; however, when the recession started and unemployment demonstrated a dramatic

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PRINCIPLES OF RETAILING increase, Wal-Mart with its weekly discounts, low prices and bundled goods as well as no-brand name apparel became a more desirable shopping destination than Target. Location analysis that was conducted for the purpose of this research allowed understanding the differences between two retailers. While the exterior of the two stores looks similar, the interior of the stores reflects differences in brand positioning. Wal-Mart has small and narrow isles that are designed to incorporate a variety of merchandise. Target is designed to leave its customers with an impression of chic and has wider aisles and specific lightning to create an impression of a high-profile retailer. As far as WalMart and Target in Dearborn are concerned, it became evident that Target is managed better in terms of creating a visual and sensory appeal to its customers. Besides, WalMart leaves an unpleasant impression due to lack of proper attention to the buildings interior and exterior. While both stores suffer from such problems as unmatched price tags on items or limited shelf space, Targets customer service is better than that in WalMart which contributes to creating the impression that Target cares more about its clients. Thus, both Target and Wal-Mart appear to be two retailers who compete in the same market (affordable retail stores). However, brand positioning strategies of the two companies differ significantly since Target presents itself as a cheap-chic retail store while Wal-Marts strategy is based on the practicability and low prices of items sold in the store. Both Target and Wal-Mart sell a similar set of merchandise including household care goods, womens wear, womens and mens apparel, furniture, beauty products, healthcare products, and sports equipment. Target defines its position on the market as Expect More. Pay Less while Wal-Mart states Save Money. Live Better or

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PRINCIPLES OF RETAILING Always Low Prices. Always. The two promises that companies make to their clients can be used to explain the differences in the two companies retail strategies.

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PRINCIPLES OF RETAILING References Banjo, S. (2012) Can Wal-Mart think small? The Wall Street Journal, May 17. Web. Available at: < http://online.wsj.com/article/SB1000142405270230387960457740854068221274 0.html> Basker, W. (2008) Does Wal-Mart sell inferior goods? Economic Inquiry, Vol. 49, No. 4, 973-981. Carmichael, M. (2012) The demographics of retail. Adage.com, March 19. Web. Available at: <http://adage.com/article/adagestat/demographics-retail/233399/> Hill, C.W.L., Jones, G.R. (2008) Strategic management theory: An integrated approach. South-Western Cengage Learning. Krafft, M., Mantrala, M.K. (eds) (2010). Retailing in the 21st century: Current and future trends. Springer-Verlag Berlin Heidelberg Levy, M., Weitz, B., Beattie, S., & Watson, D. (2011) Retailing management. 3rd Edition. McGraw-Hill. Target Corporation (2012) Target 2011 Annual Report. The Economist (2006) The behemoth from Bentonville. The Economist, Feb. 23rd. Web. Available at: < http://www.economist.com/node/5545325 > Wal-Mart (2012) Annual report 2011: Building the Next Generation Wal-Mart. Available at: <http://www.walmartstores.com/sites/annualreport/2011/>

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