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Retail Competition and Strategy
Professor Edward Fox
Cox School of Business/SMU
Retail Competition Overview
Types of Retailers and Retail Formats Strategic Profit Model The Wheel of Retailing Competitive Advantage Competitive Positioning
Low Price Convenience Variety / Assortment Service
rather than merchandise Service Pricing Infinite Variations “Survival of the Fittest” .Types of Retailers Type of retailer depends on: Merchandise Variety (Breadth) Assortment (Depth) Services.Formats must best satisfy needs of significant segment(s) Adapted from Levy and Weitz .
Types of Retailers SIC System for Classifying Retailers .
S.Types of Retailers Sales by SIC Category Source: U. Department of Commerce. 1998 Census of Retail Trade .
Container Store . Bath and Beyond. Sam‟s Club Carrefour Family Dollar.Types of Retailers – Merchandise Variety (Breadth of Merchandise) Examples of broad-line retailers: JCPenney.” or specialty stores: PetSmart. Petco Edwin Watts Bed. Dollar General Assortment (Depth of Merchandise) Examples of “Category Killers. Sears Costco.
Off-Fifth. Sam‟s Club Carrefour Adapted from Levy and Weitz . Marshall‟s Factory Outlets – manufacturer outlet for out-of season Burlington Coat Factory. higher volume Wal-Mart. Kmart Off-Price Retailers – lower cost merchandise TJMaxx. Nordstrom Rack Entire outlet malls Warehouse Clubs Costco.Types of Retailers – Price Discount Stores – lower margins. Target.
JCPenney. Kohl‟s) Full Service – Salesperson assists the customer Some department stores and specialty stores (e.g.g.. restaurants. etc. Gap..Types of Retailers – Service Self-Service – Customer is on his/her own Food and drug stores (e. Nine West).g. Self Service Full Service Retailer Costs Increase with Service! . some specialty stores (e. Kroger. Nordstrom. Walgreen‟s) Limited Service – Available salesperson Most department stores..
UPS. Bally’s. Midas. Singapore Airways Jiffy Lube. Six Flags Merrill Lynch. Gymboree American Express. Alamo Citibank. Delta. Dean Witter Jazzercise.Retailers of Services Type of Service Airlines Automobile maint/repair Automobile rental Banks Child care centers Credit cards Education Entertainment parks Financial services Fitness Health Care Home maintenance Service Retail Firms American. Roto-Rooter Adapted from Levy and Weitz Express package delivery Federal Express. Mastercard University of Florida. Babson College Disney. HCA Chemlawn. Gold’s Gym Humana. US Postal Service . VISA. Avis. Bank of America Kindercare. AAMCO Hertz. MiniMaid. Budget. NCNB. Universal Studios. British Airways.
Coldwell Banker TGI Friday’s. Loews/Sony. Ryder Weight Watchers. Jenny Craig Blockbuster Lenscrafter. Sheraton. Long-distance telephone Movie theaters Real estate Restaurants Truck rentals Weight loss Video rental Vision centers Service Retail Firms Hyatt. Wendy’s. MCI. Universal Century 21. Pizza Hut U-Haul. CompuServe AT&T. Sprint AMC. Days Inn H & R Block Allstate. Marriott.Retailers of Services Type of Service Hotels and motels Income tax preparation Insurance Internet access/Elec info. Pearle Adapted from Levy and Weitz . State Farm American On-Line.
Focus on General Merchandise Retailers Adapted from Levy and Weitz .
Apparel.g. Acquisition) Focus on Strong Categories (e. Exclusive Brands A Decline in Mall Shopping Threatens Mall-Based Department Stores! Adapted from Levy and Weitz . Jewelry) Improve Services Develop Private Labels. Home..Focus on General Merchandise Retailers – Department Stores Competition from: Discount Stores on Price Category Killers on Assortment and Service Possible Competitive Responses Lower Costs By Reducing Services More Sales (by Expansion.
PetSmart Possible Competitive Responses: Continue to Reduce Costs More Focus on Apparel Because It Offers Higher Margins … Except Wal-Mart.Focus on General Merchandise Retailers – Discount Stores Big Three – Wal-mart. Which is Focusing on Food! Adapted from Levy and Weitz . Kmart Competition from Category Killers – Toys „R Us. Best Buy. Target.
Retail Competition Example MARKET FOR WOMENS APPAREL Source: Levy and Weitz .
Strategic Profit Model Overview Net profit x Asset turnover = Return on assets Net profit x Net sales (crossed out) Net sales (crossed out) = Net profit Total assets Total assets Source: Levy and Weitz .
Strategic Profit Model Detail Net Sales Cost of goods sold Variable expenses Gross margin + Fixed expenses Inventory Total expenses Net profit Net Sales Net profit margin x + Accounts receivable Total current assets Return on assets Net sales Total assets Asset turnover + Other current assets + Fixed assets Source: Levy and Weitz .
057 = 8.51% Source: Levy and Weitz .430 $49.996 Tiffany: $ 90 $1.Strategic Profit Model RETURN ON ASSETS Return on assets = Net profit margins X Asset turnover = = Net profit Net sales X Net sales Total assets Net profit Total assets = 8.86% Wal-Mart: $ 4.
“Wheel of Retailing” Retailers Change Over Time in a Predictable Way Source: Levy and Weitz .
An advantage enjoyed by a given retailer relative to others in the market General sources of competitive advantage: Overall cost leadership .unique product or service characteristics Abercrombie and Fitch.can offer best value (i. lowest prices) or earn higher margins Wal-Mart Differentiation .. Papa Johns. Hallmark Adapted from Michael Porter .Retailing and Competitive Advantage Competitive Advantage .e. Sewell Automotive Narrow customer focus (niching) .address wants and needs of particular customer segment(s) Container Store.
Competitive Positioning Depends on: Retailer‟s competitive advantage(s) Needs and wants of target customers Current perceptions of the retailer .
Deep Assortment Service.Competitive Positioning – Examples Value. or Low Price Away from Competitors Against a Competitor E Wide Variety. Ease of Shopping D B F G H C A Convenience User Image .
Trends in Retail Competition Increasing Diversity of Retail Formats Category killers Supercenters Electronic Retailers Blurring of Products/Services Across Formats Pharmacy Food Soft goods / apparel Small Store Formats Make a Comeback Dollar store format Hard discounters in Europe Wal-Mart‟s Neighborhood Market format Increasing Concentration within Formats Centralization of Decision-Making Information and Communication Systems Retailers Go International Wal-Mart expands outside the US Retailers spread through Europe and Asia Multi-Channel Retailing .
Banking Video Rental Prepared Foods The Service Aisle. Are Growing! .Trends in Retail – Blurring Formats Various Formats Now Offer: Pharmacy Financial Services. or Perimeter Departments.
Oct 1997 .Retail Competition SHOPPING ACROSS RETAIL FORMATS Shoppers are much more likely to shop at multiple formats in a given week than to shop at grocery stores alone 40% 20% 0% Grocery Only Grocery + Mass Grocery + Drug Grocery + Club Data Source: IRI panel of 589 panelists from Oct 1995 .
5% 7.2% 2.3% 4.8% 91.1% 2.3% 1.3% 3.4% 36.9% 27.4% 20.1% 0.7% 90.0% 5.9% 4.9% 8.5% 3.0% 52.9% 40.7% 2.8% 11.3% 95.0% 22.Retail Competition SHOPPING ACROSS RETAIL FORMATS Category by category.1% 2. which packaged goods purchases are made in which formats? Packaged Goods Purchases in Retail Formats for Selected Categories Sales Ranking 1 2 3 4 5 8 11 12 14 20 25 Description REGULAR SOFT DRINKS READY TO EAT CEREAL LOW CALORIE SOFT DRINKS REFRIGERATED SKIM/LOW-FAT MILK SHELF STABLE BREAD CIGARETTES CARTON TOILET TISSUE DISPOSABLE DIAPER/LINER INTERNAL ANALGESICS TABLET DRY CELL BATTERY PAPER TOWELS % Spending % Spending % Spending % Spending in Grocery in Mass in Drug in Club 88.4% 0.5% 6.1% 10.3% 3.4% 35.4% Data Source: IRI panel of 589 panelists from Oct 1995 .5% 55.9% 25.0% 1.5% 0.Oct 1997 .8% 29.7% 0.1% 47.4% 9.2% 35.4% 3.8% 31.8% 36.8% 88.6% 6.2% 46.
Kmart. CVS. Target Drug stores Walgreens. Office Max Consolidation increases efficiency and lowers costs Source: Levy and Weitz . Staples. Eckerd Office Supply Category Killers Office Depot.Trends in Retail – Consolidation Discount Stores Wal-Mart.
Revenue / Margin % Portfolio CONVENIENCE STORES High Sales Dollar Volume Low High Hot Bev Ice Sandwiches Other SandFast Candy & -Fresh Food wichesGum Cooked Salty GM Juices Food Auto Frozen Snacks Bottled CookIce HBC Cream ies Pckg’dWater Deli Frozen Deli Svcs Food Groceries Wine/ Liquor Produce Breads & Cakes Eggs Milk Publications Fountain Drinks Frozen Bev Gross Margin Percentage Soft Drinks Tobacco Low Beer .
Revenue / Margin % Portfolio GENERAL MERCH.Building Wear wares Supplies Toys Automotive Sporting Goods Giftware Jewelry & Handbags/ Watches Accessories Women's Wear Gross Margin Percentage Hosiery Paint & Girls’ Wallpaper Boys’ Wear Pet Luggage Wear Supplies Books Infants’ Ware Lawn & Garden Photo CDs & Goods Tapes RTA Furniture Magazines Consumer Electronics Low Candy Traffic Appliances Tobacco . DISCOUNT STORES High Sales Dollar Volume Low High Stationary/ Greeting Cards Shoes Kitchen/ Hardware/ Men's House.
wraps Yogurt Ice cubes Spices Pasta Bread Ice cream Teas Rices Cat litter Gross Margin Percentage Cookies Soup Crackers Spaghetti sauce Tuna Cooking oils Facial tissue Peanut butter Bleaches Laundry detergent RTE cereal Low Toilet tissue . bags.Revenue / Margin % Portfolio GROCERY STORES High Sales Dollar Volume Low High Milk Foils.