Retail Strategy

“Strategy” Is Over Used

Retailers Talk About A Lot of Different
“Strategies”
– Sales Strategy
– Advertising Strategy
– Merchandise Strategy
– Location Strategy

Strategy Is Not Just Another Term for

A Management Decision
Strategic vs. Tactical Decisions

Strategic Tactical
Direction Implementation
Strategy statement Annual plan
Broad Specific, detailed
Unstructured Structured
Problem solving Problem solving
Creativity Analytical
External focus Internal focus
Irregular Regular
Long-term Short-term
Difficult to evaluate Easy to evaluate
Note: Success Comes for Having a Good Strategy and Executing It Well
 Elements in Retail Strategy

1. Target Market
• Retail Format
• Bases for Building
Sustainable
Competitive
Advantage
 Elements in Retail Strategy

1. Target Market
• the market segment(s) toward which the retailer
plans to build a sustainable competitive
advantage.

1. Retail Format
• is the retailer’s mix

1. Bases for Building Sustainable Competitive

Advantage
• It is the distinctive edge (s) that company has
over the other players in the target market
 Elements in Retail Strategy

1. Target Market
• Customer Needs

1. Retail Format
• Method for Satisfying Needs

1. Bases for Building Sustainable Competitive

Advantage
• a better value proposition to satisfying the
customer needs that the other players cannot
copy or very difficult to copy
 An Apparel Retailer’s Strategy
Target Market
Woman 35 to 55 Who Want Comfortable, Casual,
But Stylish Apparel
Retail Format
Specialty Apparel Stores in Malls and Strip Centers
Selling Private Label, Coordinated Outfits
Bases for Building Sustainable Competitive Advantage
Unique Merchandise Sized 0,1,2,3
 Analyzing Traderjoe’s Retail Strategy

What Is Traderjoe’s’:
-Target market?

-Retail offering (format)?

-Bases for competitive advantage?

What Threats Might Traderjoe’s in the Future?

Why Does a Retailer Need to
Focus on a
Specific Target Market?

Why Not Sell to Everyone?

Retail Market Opportunities for
Women’s Apparel
Segmentation
 Methods for Segmenting Markets

Buying Situations Geographic

Benefits Sought

Lifestyle, Psychographics

Demographics
 Criteria For Selecting
A Target Market
• Attractiveness -- Large, Growing, Little
Competition More Profits
• Consistent with Your Competitive Advantages
 Can A Retailer Develop a
Sustainable
Competitive Advantage by:
• Dropping the Price of his Merchandise?
• Building a Store at the Best Location?
• Deciding to Sell Some Hot Merchandise?
• Increasing his Level of Advertising?
• Attracting Better Sales Associates by
Paying Higher Wages?
• Providing Better Customer Service?
 Internal and External Bases for
Competitive Advantage
Retail Firm
•Low Cost
•Large Size
•Efficient
Distribution,
Operations
Vendors,
• Unique Customers
Suppliers
Knowledge
• Loyal Employees

Sources of
Capital
 Sources of Competitive
Advantage
More Sustainable Less Sustainable
• Location • Better Computers
• Customer Loyalty • More Employees
• Customer Service • More Merchandise
• Exclusive Merchandise
• Greater Assortments
• Low Cost Supply Chain
Management • Lower Prices
• Information Systems • More Advertising
• Buying Power with • More Promotions
Vendors • Cleaner Stores
• Committed Employees
 Loyalty

What does loyalty mean?

…Going to the store frequently?
Is It the same as liking a store?
 Approaches for Building
Customer Loyalty
Unique Positioning
Customer Service
Information About Customers (Database
Retailing)
Unique Merchandise
Location
Example of Positioning
 Basis of Loyalty, Commitment

• Costs
– Location
– Frequent Shopper Programs
– Unique Merchandise
• Mental, Emotional Attachment
 Creating Store Loyalty
Mental and Emotional
Attachments
• Elements in a Strong Brand
– Top of the Mind Awareness
– Associations with Brand/Store
Name
• Methods Used to Develop a
Strong Brand
– Massive Exposure
– Symbols to Reinforce Image
– Consistent Positioning Creating
Strong Associations
– Limited Brand Extensions
 Vendor Relationships
• Low Cost - Efficiency Through Coordination
– Electronic Data Interchange (EDI)
– Collaborative Planning and Forecasting to
Reduce Inventory and Distribution Costs
• Exclusive Sale of Desirable Brands
• Special Treatment
– Early Delivery of New Styles
– Shipment of Scare Merchandise
 High Quality Customer Service
• Difficult to Achieve
– People Are Not Machines -- Inconsistent
– Retail Sales Associates At Bottom of Labor
Pool
• Goes Beyond Hiring Good People at High
Wages and Training Them -- Organizational
Culture
 Critical Tradeoff In Developing
Strategic Advantage
Focus Leads to Developing
A Competitive Advantage
But
Focus Reduces Flexibility

• Low Cost, Consistent Image, Vendor

Relationships Reduces Flexibility
• Similar to Dating and Marriage – Commitment to a
Relationship (Vendor) Reduces Flexibility
 Growth Opportunities

•Market Penetration
•Market Expansion

•Retail Format Development

•Diversification

- Related vs. Unrelated

Growth Opportunities
 Steps in the Strategic
Retail Planning Process

1. Define the business mission

2. Conduct a situation audit:

Market attractiveness analysis
Competitor analysis
Self-analysis

3. Identify strategic opportunities

4. Evaluate strategic alternatives

5. Establish specific objectives and allocate resources

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments

 Elements in a Market Analysis

100

0
1 st 2 n d 3 rd 4 th
Q tr Q tr Q tr Q tr
MARKET COMPETITIVE ENVIRONMENTAL ANALYSIS OF
FACTORS FACTORS FACTORS STRENGTHS &
WEAKNESSES
Size Barriers to entry Technology Management
Bargaining power of Economic capabilities
Growth
vendors Regulatory Financial resources
Seasonality Locations
Business cycles Competitive rivalry Social
Operations
Threat of superior Merchandise
new formats Store Management
Customer loyalty
 Questions for
Analyzing the Environment

• New developments or changes --

technologies, regulations, social
factors, economic conditions
• Likelihood changes will occur
• Key factors determining change
• Impact of change on retail market
firm, competitors
 Porter’s Five Forces

Barriers to
Entry

Bargaining
Power of Competitiv Large
Vendors e Customers
Rivalry

Threat of
Substitution
Strengths and Weaknesses Analysis

Management Capability:
Capabilities and experience of top management
Depth of Management--capabilities of middle management
Management’s commitment to firm

Financial Resources:
Cash flow from existing business
Ability to raise debt or equity financing
Operations: Store Management Capabilities
Overhead cost structure Management capabilities
Quality of operating systems Quality of sales associates
Distribution capabilities Commitment of sales associates to firm
Management information systems
Loss prevention systems Locations
Inventory control system

Merchandising Capabilities:
Knowledge and skills of buyers Customers
Relationships with vendors Loyalty of customers
Capabilities in developing private
capabilities
 Market Attractiveness/Competitive
Position Matrix
High Medium Low
Maximum Invest to Opportunities
investment challenge leader investment
Aggressive
Market Attractiveness

Consolidate Build strength or investment

position exit
Selective Cautious Harvest
investment investment or
divest
Cautious
Build on strengths investment

Protect Harvest or Harvest

position divest or
divest
Manage for cash Minimal
generation investment

Competitive Position
 Evaluation of Merchandise
Category Opportunities

1,000
High Medium Low

Soft home
High


Market Attractiveness

Men’s clothing
667

Women’s Children’s
Medium

clothing clothing
   Consumer

Junior’s Furniture electronics
clothing 
333
Low

1,000 667 333