LESSON 5

Retail Market Strategy

Adapted from:

Levy M., Weitz B. and Grewal D., Retailing Management, 10th

Edition, McGraw-Hill, New York, 2019,

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
 Learning Objectives
Learning Objective 5-1 Define retail strategy.
Learning Objective 5-2 Illustrate how retailers build a
sustainable competitive advantage.
Learning Objective 5-3 Classify the different strategy
growth opportunities retailers pursue.
Learning Objective 5-4 Identify issues that arise as
domestic retailers become global retailers.
Learning Objective 5-5 Know the steps retailers go
through to develop a strategic plan.

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 What is a Retail Strategy? 1 of 2
Learning Objective 5-1 Define retail strategy.

Retail Strategy
• statement identifying target market, format, plan
Target Market
• the market segment(s) toward which the retailer plans to focus
its resources and retail mix

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 What is a Retail Strategy? 2 of 2

Retail Format
• the nature of the retailer’s operations—its retail mix
Sustainable Competitive Advantage
• an advantage over the competition that is not easily duplicated
and can be maintained over a long time

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 Retail Strategies

Lululemon’s retail
strategy is selling
merchandise that
appeals to
consumers
seeking spiritual
enrichment
through yoga.

©McGraw-Hill Education. © Luis Sinco/Los Angeles Times/Getty Images

 Central Concepts in a Retail Market
Strategy 1 of 10
Learning Objective 5-2 Illustrate how retailers build a sustainable competitive
advantage.

Retail market segment

• A group of consumers with similar needs and a group
of retailers that satisfy those needs using a similar
retail channel and format.
• Bebe is a specialty store that targets a fashion-forward
customer.

©McGraw-Hill Education. © Fernando Leon/WireImage/Getty Images

 EXHIBIT 5-1 Retail Market Segments for Apparel

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appendix
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 Central Concepts in a Retail Market
Strategy 2 of 10
Building a Sustainable Competitive Advantage
• Some advantages sustainable
• Others copied quickly by competitors
• Three keys to sustainable advantage
• Build strong relationships with customers
• Build strong relationships with suppliers
• Achieve efficient internal operations

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 EXHIBIT 5-2 Approaches for Developing a
Sustainable Competitive Advantage
Sources of Advantage Less Sustainable More Sustainable

Customer loyalty (Chapters 10
and 15)
Location (Chapters 7 and 8)
Habitual repeat purchasing
because of limited competition
in the local area
Building a brand image with an
emotional connection with
customers; use of databases to
develop and utilize a deeper
understanding of customers
Convenient locations

Human resource management More employees Committed, knowledgeable

and managing the store
(Chapter 15)
Distribution and information
systems (Chapter 10)
Unique merchandise
(Chapters 11 and 12)
Vendor relations (Chapter 12)
Customer service (Chapter 17) Hours of operation
Bigger warehouses; automated
warehouses
More merchandise; greater
assortment; lower price; higher
advertising budgets; more
sales promotions
Repeat purchases from vendor
due to limited alternatives
employees
Shared systems with vendors
Exclusive merchandise
Coordinated procurement efforts;
ability to get scarce merchandise
Knowledgeable/helpful staff

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 Central Concepts in a Retail Market
Strategy 3 of 10
Relationships with Customers – Customer Loyalty
• More than simply liking one retailer over another.
• Customers will be reluctant to patronize competitive
retailers.

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 Central Concepts in a Retail Market
Strategy 4 of 10
Relationships with Customers – Customer Loyalty
continued

• Brand Image
• Facilitates store loyalty because it stands for a predictable
level of quality

• Positioning
• Design and implementation of retail mix to create image
• Perceptual map

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 EXHIBIT 5-3 Hypothetical Perceptual Map of Women’s
Apparel Market

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appendix
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 Central Concepts in a Retail Market
Strategy 5 of 10
Relationships with Customers – Customer Loyalty
continued

• Unique Merchandise
• Private-label brands
• Store brands
• Own brands
• Customer Service
• Ritz-Carlton’s
outstanding service
builds customer
loyalty

©McGraw-Hill Education. © Oliver Strewe/Lonely Planet Images/Getty Images

 Central Concepts in a Retail Market
Strategy 6 of 10
Relationships with Customers – Customer Loyalty
continued

• Customer Relationship Management Programs

• CRM programs, loyalty, frequent-shopper programs
• Build loyalty by rewarding purchases

• Building a Retail Community Using Social Media

• Retail community
• Fan of Facebook page

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 Central Concepts in a Retail Market
Strategy 7 of 10
Relationships with Suppliers
• Most important is relationship with vendors
• Develop mutually beneficial assets and programs to
create competitive advantage

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 Central Concepts in a Retail Market
Strategy 8 of 10
Efficiency of Internal Operations
• Human Resource Management
• Knowledgeable and skilled employees are a critical asset

• Distribution and Information Systems

• Offer opportunity for retailer to reduce costs
• Purchase data helps retailer tailor merchandise

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 Central Concepts in a Retail Market
Strategy 9 of 10
Location
• Most important factor
determining which store
customer patronizes
• A sustainable competitive
advantage as not easily
duplicated
• Starbucks creates a competitive
advantage by saturating an
area with stores, which makes it
difficult for competitors to find
good locations.

©McGraw-Hill Education. © Rob Crandall/Alamy Stock Photo

 Central Concepts in a Retail Market
Strategy 10 of 10
Multiple Sources of Advantage
• Retailers use multiple approaches to build a high wall
around their position
• McDonald’s provides good value, efficient service, strong
brand name, convenient locations
• Walmart has a size advantage, strong vendor relationships,
clear positioning of retailer with superior value

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 Growth Strategies 1 of 5
Learning Objective 5-3 Classify the different strategic growth opportunities
retailers pursue.

Growth Opportunities
• Market Penetration
• Market Expansion
• Retail Format Development
• Diversification

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 EXHIBIT 5-4 Growth Opportunities

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appendix
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 Growth Strategies 2 of 5

Market Penetration
• Attract new customers from current target market
• Get current customer to visit store more often or buy
on each visit
• Opening more stores or extending store hours
• Cross Selling – sales associates in one department
sell complementary merchandise from other
departments

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 Growth Strategies 3 of 5

Market Expansion
• Use existing retail format in new market segments
• Dunkin’ Donuts opened new stores outside traditional target
market
• Chico’s acquired White House Black Market

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 Growth Strategies 4 of 5

Retail Format Development

• Develops a new retail format with a different retail mix
for the same target market
Diversification
• Introduces a new retail format directed toward market
segment not currently served by retailer
• Related diversification growth opportunity
• Unrelated diversification growth opportunity
• Vertical integration

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 Growth Strategies 5 of 5

Growth Opportunities and Competitive Advantage

• Market growth opportunities greatest chance of
succeeding because they build on retailer’s present
base of advantage
• Diversification opportunities present the least
opportunity to exploit an advantage

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 Global Growth Opportunities 1 of 6
Learning Objective 5-4 Identify issues that arise as domestic retailers become
global retailers.

Expanding to international markets especially

appealing to large retailers
• Increase sales
• Leverage knowledge and systems across greater
sales base
• Gain more bargaining power with vendors

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 Global Growth Opportunities 2 of 6

Attractiveness of International Markets

• Potential size of retail market
• Degree to which country supports entry of foreign
retailers
• Risks or uncertainties in sales and profits

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 EXHIBIT 5-5 Indicators of the Potential, Support, and
Risk in International Markets
Country Potential
Population (+)
Population growth rate (+)
GDP (+)
GDP growth rate (+)
GDP per capita (+)
Retail sales (+)
Retail sales growth rate (+)
Retail sales per capita (+)
Population (+)
Income distribution (+ or –)
Age (+ or –)
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Country Support Country Risk
Market share of modern Political stability (+)
retailing (+)
Quality of infrastructure Business-friendly laws and
(roads, trains, etc.) (+) regulations (+)
Urban population (+) Access to bank financing (+)
Market share of domestic National debt (–)
retailers (+)
Market share of international Crime (–)
retailers (+)
Market share of largest Violence (–)
retailers (+)
Corruption (–)
 EXHIBIT 5-6 Country Attractiveness

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appendix
©McGraw-Hill Education. Source: The 2015 Global Retail Development Index: Global Retail Expansion: An Unstoppable Force, copyright A.T. Kearney, 2015. All rights reserved. Reprinted with permission.
 Global Growth Opportunities 3 of 6

Attractiveness of International Markets continued

• India
• Unorganized retailing
• Less than 5 percent of retail sales are through organized
retail channels
• Foreign retailers must comply with myriad of regulations

• China
• Direct foreign investment encouraged
• Thriving retail market
• Inefficient supply chain

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 Global Growth Opportunities 4 of 6

Attractiveness of International Markets continued

• Brazil
• Largest population, strongest economy in Latin America

• Russia
• Corruption is rampant and bribe payments are common
• Logistical challenges
• Threat of a financial crisis

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 Global Growth Opportunities 5 of 6

Keys to Success in Global Retailing

• Globally sustainable competitive advantage
• Adaptability
• Adjust store design
• Government regulations

• Global culture
• Financial resources

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 Global Retailing

China’s major cities have American stores and restaurants,

including McDonald’s.
©McGraw-Hill Education. © In Pictures Ltd./Corbis/Getty Images
 Global Growth Opportunities 6 of 6

Entry strategies
• Direct investment
• Joint venture
• Strategic alliance
• Franchising

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 The Strategic Retail Planning Process
1 of 6

Learning Objective 5-5 Know the steps retailers go through to develop a

strategic plan.

The strategic retail planning process

• Select target market segments
• Determine retail format
• Build sustainable competitive advantage

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 EXHIBIT 5-7 Stages in the
Strategic Planning Process

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appendix
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 The Strategic Retail Planning Process
2 of 6

The strategic retail planning process continued

• Step 1: Define the Business Mission
• The mission statement
• What business are we in?
• What should our business be in the future?
• Who are our customers?
• What are our capabilities?
• What do we want to accomplish?

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 The Strategic Retail Planning Process
3 of 6

The strategic retail planning process continued

• Step 2: Conduct a SWOT Analysis
• Internal environment (strengths and weaknesses)
• External environment (opportunities and threats)
• Market factors
• Competitive factors
• Barriers to entry, scale economies, bargaining power
of vendors, competitive rivalry
• Environmental dynamics

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 EXHIBIT 5-8 Elements in a Strengths and
Weaknesses Analysis
Management Capability Capabilities and experience of top management; depth
of management; management’s commitment to firm
Financial Resources Cash flow from existing business; ability to raise debt or
equity financing
Operations Overhead cost structure; quality of operating systems;
distribution capabilities; management information
systems; loss prevention systems; inventory control
systems
Merchandising capabilities Knowledge and skills of buyers; relationships with
vendors; capabilities in developing private brands;
advertising and promotion capabilities
Store management Management capabilities; quality of sales associates;
capabilities commitment of sales associates to firm
Locations
Operations Loyalty of customers

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 EXHIBIT 5-10 Opportunities and Threats

Market Factors Competitive Factors Environmental Dynamics

Market size Barriers to entry Technological changes
Market growth Bargaining power of Economic/consumer/social
vendors changes
Cyclicality of sales Competitive rivalry Regulatory changes
Seasonality

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 Barriers to Entry

It is difficult to enter the cosmetics industry because two

suppliers, Estée Lauder and L’Oréal provide most of the
desirable premium brands.

©McGraw-Hill Education. (first): © Diane Langlume/Bloomberg/Getty Images; (second): © Adam Berry/Bloomberg/Getty Images
 The Strategic Retail Planning Process
4 of 6

The strategic retail planning process continued

• Step 3: Identify strategic opportunities
• Step 4: evaluate strategic opportunities
• Step 5: establish specific objectives and allocate
resources
• Performance sought using a numerical index to measure
against
• Time frame to achieve goal
• Level of investment required

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 The Strategic Retail Planning Process
5 of 6

The strategic retail planning process continued

• Step 6: Develop a retail mix to implement the strategy
• Step 7: evaluate performance and make adjustments

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 The Strategic Retail Planning Process
6 of 6

Strategic Planning in the Real World

• Actual planning processes have interactions among
the seven steps
• SWOT may uncover a new alternative and then mission
statement must be reformulated
• Development of implementation plan may reveal insufficient
resources and objective would need to be changed

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 Key Terms 1 of 7
bargaining power of vendors A characteristic of a market in which retailers
are so dependent on large, important vendors that their profits are adversely
affected.
barriers to entry Conditions in a retail market that make it difficult for firms to
enter the market.
competitive rivalry The frequency and intensity of reactions to actions
undertaken by competitors.
cross-selling When sales associates in one department attempt to sell
complementary merchandise from other departments to their customers.
customer loyalty Customers’ commitment to shopping at a store.
customer relationship management (CRM) program The set of activities
designed to identify and build the loyalty of the retailer’s most valuable
customers. Also called loyalty program or frequent-shopper program.

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 Key Terms 2 of 7
direct investment The investment and ownership by a retail firm of a division
or subsidiary that builds and operates stores in a foreign country.
diversification growth opportunity A strategic investment opportunity that
involves an entirely new retail format directed toward a market segment not
presently being served.
franchising A contractual agreement between a franchisor and a franchisee
that allows the franchisee to operate a retail outlet using a name and format
developed and supported by the franchisor.
frequent shopper program Activities designed to identify and build the loyalty
of the retailer’s most valuable customers. Also called loyalty program.
joint venture In the case of global expansion, an entity formed when the
entering retailer pools its resources with a local retailer to form a new company
in which ownership, control, and profits are shared.
loyalty program Activities designed to identify and build the loyalty of the
retailer’s most valuable customers. Also called frequent-shopper program.

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 Key Terms 3 of 7
market expansion growth opportunity A strategic investment opportunity that
employs the existing retail format in new market segments.
market penetration growth opportunity An investment opportunity strategy
that focuses on increasing sales to present customers using the present
retailing format.
mission statement A broad description of the scope of activities a business
plans to undertake.
opportunities and threats analysis Assessments of features of the
environment that might positively or negatively affect the retailer’s performance.
own brand Products developed and marketed by a retailer and available for
sale only by that retailer. Also called store brand, private-label brand, or house
brand.
perceptual map A graphic depiction of customers’ images of and preferences
for retailers.

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 Key Terms 4 of 7
positioning The design and implementation of a retail mix to create in the
customer’s mind an image of the retailer relative to competitors.
private-label brand Products developed and marketed by a retailer and
available for sale only by that retailer. Also called store brand, house brand, or
own brand.
related diversification growth opportunity A diversification opportunity
strategy in which the retailer’s present offering and market share something in
common with the market and format being considered.
retail community A group of consumers who have a shared involvement with
the retailer.
retail format The retailer’s type of retail mix (nature of merchandise and
services offered, pricing policy, advertising and promotion program, approach to
store design and visual merchandising, and typical location).

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 Key Terms 5 of 7
retail format development growth opportunity An investment opportunity
strategy in which a retailer offers a new retail format – a format involving a
different retail mix – to the same target market.
retail market segment A group of customers whose needs will be satisfied by
the same retail offering because they have similar needs and go through similar
buying processes.
retail strategy A statement that indicates (1) the target market toward which a
retailer plans to commit its resources, (2) the nature of the retail offering that
the retailer plans to use to satisfy the needs of the target market, and (3) the
bases on which the retailer will attempt to build a sustainable competitive
advantage.
scale economies Cost advantages due to the size of a retailer.
SWOT analysis An assessment of the retailer’s internal and external
environment, as represented by strengths, weaknesses, opportunities, and
threats.

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 Key Terms 6 of 7
store brand Products developed and marketed by a retailer and available for
sale only by that retailer. Also called private-label brand, house brand, or own
brand.
target market The market segment(s) toward which the retailer plans to focus
its resources and retail mix.
unorganized retailing Collections of small, independent retailers, especially
common in emerging economies.
unrelated diversification growth opportunity Diversification in which there is
no commonality between the present business and the new business.
vertical integration An example of diversification by retailers involving
investments by retailers in wholesaling or manufacturing merchandise.

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 Key Terms 7 of 7
strategic alliance Collaborative relationships between independent firms. For
example, a foreign retailer might enter an international market through direct
investment but develop an alliance with a local firm to perform logistical and
warehousing activities.
strategic retail planning process The steps a retailer goes through to
develop a strategic plan. It describes how retailers select target market
segments, determine the appropriate retail format, and build sustainable
competitive advantages.
strengths and weaknesses analysis A critical aspect of the situation audit in
which a retailer determines its unique capabilities – its strengths and
weaknesses relative to competition.
sustainable competitive advantage A distinct competency of a retailer
relative to its competitors that can be maintained over a considerable time
period.

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 Appendix of Image Long
Descriptions

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 Appendix 1 EXHIBIT 5-1 Retail Market Segments for Apparel

Three fashion segments are listed horizontally on the graph: conservative,

traditional, and fashion-forward. Vertically on the graph, four retail formats are
listed: specialty store, department store, discount store, and off-price store.
Retailers are charted on the graph, their location depending on their fashion
segment and retail format.
Fashion Bug: conservative fashion segment; specialty store retail format. The
Gap, The Limited, and Talbots: traditional; specialty store. Bebe, Urban
Outfitters, and H&M: fashion-forward; specialty store. J.C. Penney and Kohl’s:
traditional; department store. Macy’s: between the traditional and fashion-
forward fashion segments; department store retail segment. Saks Fifth Avenue,
Bloomingdale’s, and Neiman Marcus: fashion-forward; department store.
Family Dollar and Dollar General: conservative; discount store. Kmart and
Walmart: between the conservative and traditional fashion segments; discount
store retail format. Target: between the traditional and fashion-forward fashion
segments; discount store retail format. Ross stores: conservative; off-price
store. T.J. Maxx: traditional; off-price store. Stein Mart and bluefly.com: fashion-
forward; off-price store.

Return to original slide

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 Appendix 2 EXHIBIT 5-3 Hypothetical Perceptual Map of
Women’s Apparel Market

A graph is divided into four quadrants. The top half of the graph is labeled fashion forward, while the bottom half is
labeled traditional. The left side of the graph is labeled limited service, while the right is labeled extensive service. The
dividing lines intersect in the center of the graph, considered a moderate area. Retailers are plotted onto the graph
depending on their fashion segment and level of service.

Quadrant 1. The vertical axis is labeled top to bottom as fashion forward to moderate fashion. The horizontal axis is
labeled left to right as limited service to moderate service. Marshalls and T.J. Maxx: mid-moderate/fashion forward;
limited service. Target: above-moderate fashion; mid-limited/moderate service. Forever 21: fashion forward; moderate
service.

Quadrant 2. The vertical axis is labeled top to bottom as fashion forward to moderate fashion. The horizontal axis is
labeled left to right as moderate service to extensive service. A list of retailers are plotted in this quadrant, increasing
from moderate fashion/moderate service to fashion forward/extensive service. They are: Old Navy, American Eagle
Outfitters, The Gap, Abercrombie and Fitch, J.C. Penney, The Limited, Banana Republic, Macy’s, Nordstrom,
Bloomingdale’s, Saks Fifth Avenue, and Neiman Marcus. Other retailers include Zara and Bebe. Zara: fashion forward;
moderate service. Bebe: high fashion; above-moderate service.

Quadrant 3. The vertical axis is labeled top to bottom as moderate fashion to traditional fashion. The horizontal axis is
labeled left to right as moderate service to extensive service. Talbots and Chico’s: moderate fashion; mid-
moderate/extensive service.

Quadrant 4. The vertical axis is labeled top to bottom as moderate fashion to traditional fashion. The horizontal axis is
labeled left to right as limited service to moderate service. Sears: mid-moderate/traditional fashion; moderate service.
Walmart: mid-moderate/traditional fashion; highly limited service. Kmart: traditional fashion; limited service.

The numbers 1 through 7 are placed by certain retailers to represent differing segments. Number 1 is located by
Walmart; number 2 is by Abercrombie and Fitch; number 3 is by Marshalls and T.J. Maxx; number 4 is by Saks Fifth
Avenue and Bloomingdale’s; number 5 is by J.C. Penney; number 6 is by Zara and Bebe; and number 7 is by Talbot’s
and Chico’s.
Return to original slide
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 Appendix 3 EXHIBIT 5-4 Growth Opportunities

A graph is divided into four quadrants. The horizontal axis is labeled

target markets, with existing on the left side and new on the right. The
vertical axis is labeled retail format, with existing at the top and new at
the bottom. Four growth opportunities are listed.
1. Market penetration: existing target market; existing retail format.
2. Market expansion: new target market; existing retail format.
3. Diversification (unrelated/related): new target market; new retail
format.
4. Format development: existing target market; new retail format.

Return to original slide

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 Appendix 4 EXHIBIT 5-6 Country Attractiveness

The graph is labeled country risk (economic and political) on its vertical axis. 0 equals high risk, 100
equals low risk. On the horizontal axis, the graph is labeled market potential based on weighted score
of market attractiveness, market saturation, and time pressure of top 30 countries. 0 equals low
potential, 100 equals high potential.

The countries are divided into three segments: on the radar screen, to consider, and lower priority.
Each segment’s countries are indicated by a circle, which varies in size depending on the country’s net
retail sales in 2011.

Lower priority countries. From the smallest circle to the largest, they are: Macedonia, Albania,
Lebanon, Tunisia, Panama, Morocco, Colombia, Philippines, Mexico, and Russia. Mexico has the
highest country risk at 70, while Russia has the highest market potential at 45. The Philippines has the
lowest country risk and market potential at 55 and 40 respectively.

To consider countries. From the smallest circle to the largest, they are: Sri Lanka, Jordan, Botswana,
Azerbaijan, Kuwait, Kazakhstan, Saudi Arabia, Malaysia, Turkey, and Indonesia. Malaysia has the
highest country risk at 100, while Azerbaijan has the highest market potential at 56. Botswana has a
high country risk at 90, but the lowest market potential at 37.

On the radar screen countries. From the smallest circle to the largest, they are: Oman, Mongolia,
Georgia, Uruguay, Peru, Chile, United Arab Emirates, India, Brazil, and China. Chile has the highest
country risk at 100, while Brazil has the highest market potential at 70. Oman has a high country risk
at 99, but the lowest market potential at 46.

The five largest circles on the graph, from smallest to largest, are Mexico, Russia, India, Brazil, and
China.
Return to original slide
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Appendix 5 EXHIBIT 5-7 Stages in the Strategic Planning Process

1. Define the business mission.

2. Conduct a SWOT analysis: Internal environment (strengths and
weaknesses analysis); external environment (opportunities and
threats analysis).
3. Identify strategic opportunities.
4. Evaluate strategic opportunities.
5. Establish specific objectives and allocate resources.
6. Develop a retail mix to implement strategy.
7. Evaluate performance and make adjustments.

Return to original slide

©McGraw-Hill Education.