Retail Marketing

Strategy
Retailing: The last stop in
the marketing chain
A high-growth sector in emerging markets,
including India
 What is Retailing?
 Retailing consists of the activities involved in
selling goods and/or services to ultimate
consumers for personal consumption.
 Retailing activities add value to the products and
services sold to consumers.
 Issues in Retailing
 How can we best serve our customers while
earning a fair profit?
 How can we stand out in a highly competitive
environment where consumers have too many
choices?
 How can we grow our business, while retaining a
core of loyal customers?

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Manufacturer’s Perspective
The Four P’s of Marketing

Retailers are the face of the

distribution channel
Product

Distribution Price

Promotion
The Retailer’s Role in the Sorting
Process (link to Mkt. Mix)

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 Developing an Overall Retail Strategy

Controllable Uncontrollable
Variables: Variables:
• Store location • Consumers
• Managing business • Competition
• Merchandise • Technology
management Retail • Economic
and pricing Strategy conditions
• Communicating • Seasonality
with customer • Legal restrictions
Retail formats?
 Store Formats by Location
a) Chain store
 Multi-locational
 Operates multiple outlets under common ownership
 Engages in some level of centralized or coordinated purchasing
and decision making
b) High street format:
 A retail chain that seeks to locate itself in busy shopping areas
(generally less than 2,000 sft, with no parking facilities and
focused merchandise categories)
c) Destination format:
 Independent retail stores located specifically in an area with
alluring propositions (usually large in size, with ample
concessions, huge parking space, wide merchandise categories)
d) Convenience store format:
 Accessible carrying wide array of consumable goods (less than
5,000 sft, extended hours, parking for few vehicles, convenience
merchandise)
Competitive State of Chains
Advantages Disadvantages
 Bargaining power  Limited flexibility
 Cost efficiencies
 Higher investment
 Efficiency from
costs
computerization,  Complex
sharing
warehouse and managerial
other functions control
 Defined  Limited
management independence
philosophy among personnel
 Considerable
efforts in long-run
planning
Convenience Store Strategy Mix

Prices:
Location:
Average to
Neighborhood
Above average

Atmosphere &
Merchandise: Services:
Medium width Average
and low depth
of assortment; Promotion:
average quality Moderate
 Store Formats by Ownership
a) Independent
 Generally higher level of independent retailers exists
 50% of these are run by owners and their families
 Why so many? Ease of entry

b) Franchise:
 A contractual agreement between a franchisor and a retail
franchisee, which allows the franchisee to conduct business
under an established name and according to a given
pattern of business
 Franchisee pays an initial fee and a monthly percentage of
gross sales in exchange for the exclusive rights to sell
goods and services in an area
 Competitive State of Independents

Advantages Disadvantages
 Flexibility in formats,  Lack of bargaining
locations, and strategy power
 Control over investment  Lack of economies
costs and personnel of scale
functions, strategies  Labor intensive
 Personal image operations
 Consistency and  Over-dependence
independence on owner
 Strong entrepreneurial  Limited long-run
leadership planning
 Store Formats by
Merchandise Category
a) Family store
 Store dealing in all categories of related item (For e.g. apparel store
offering merchandise to suit the wardrobe of a family)
b) Specialty format:
 Narrow product lines with good depth. Specializing in a given type of
merchandise, offering attentive customer services.
c) Department store format:
 Large in size having several departments working as SBUs
d) Super market format:
 Departmentalized, specializing in foodstuff, grocery and limited non-
food categories, free access displays so that customers can pick from
shelves.
e) Emporium:
 Selling a variety of a particular group of merchandise (sari emporium).
Specialty Store Strategy Mix

Prices:
Merchandise: Competitive to
Very narrow width and Above average
extensive depth of
assortment; average to Atmosphere and
good quality Services:
Average to excellent

Promotion:
Heavy use of displays
Extensive sales force
Toys "Я" Us operates 840 stores
in the US and 716 stores in 34
other countries. The flagship
store in New York City's Times
Square is the biggest toy store in
the world. It is the largest toy-
centered retailer.
Department Store Strategy Mix

Location: Prices:
Business district, shopping Average to
center or isolated store Above average

Atmosphere and
Merchandise: Services:
Extensive width and Good to excellent
depth of Promotion:
assortment; average to Heavy ad and catalog
good quality use; direct mail;
personal selling
 Conventional Supermarket
Strategy Mix
Location: Prices:
Neighborhood Competitive

Merchandise: Atmosphere and

Extensive width Services:
and depth Average
of assortment; Promotion:
average quality; Heavy use of
manufacturer, newspapers, flyers,
private, & generic brands and coupons
 Store Formats by Size
a) Superstore format
 Single-level large store, twice the size of a supermarket,
offers non-traditional goods and services like pharmacy,
flower shop, bookstore, salad bar, bakery etc.
b) Shopping Mall:
 Spread over a large area, arrangement of retail stores
and places for leisure activities.
c) Shopping Center:
 Plaza combining five or more tenant spaces developed
under one building.
d) Hypermarket:
 Wide variety, offering in large quantities in each category
selling huge volumes at low margins.
 Store Formats by Price
a) Discount format
 Bazaar format, believing in discounts more often.
b) EDLP format:
 Specialize in a particular merchandise line, assuring
consistently low prices.
c) Category killer format:
 Large specialty store having enormous selection of its
product category at relatively low prices.
d) Factory-outlet format:
 Owned and operated by the manufacturer
e) Warehouse format:
 Large sale of discontinued merchandise, has large width
and depth in many categories it retails.
f) Single-price denomination format:
 Scrambled merchandise at just one price point, generally
at a low one.
Discount Store Strategy Mix
Prices:
Merchandise: 25% or more below
Extensive width and MRP
depth of
assortment; average to Atmosphere/ Services:
good quality (overruns, Slightly below
irregulars, cut-sizes) average to average

Promotion:
Heavy on newspapers;
price-oriented; selling
 Factory Outlet Strategy Mix

Prices:
Very Low
Merchandise:
Moderate width and Atmosphere/ Services:
poor depth of Very low
assortment;
low continuity (cancelled
orders, discontinued Promotion:
merchandise) Little
Warehouse Store Strategy Mix

Location:
Prices:
Secondary site, often in
Very low
industrial area

Atmosphere and
Merchandise: Services:
Moderate width and Low
low depth of
assortment; emphasis on
manufacturer brands Promotion:
bought at discount Little or none
 Importance of SKUs
 A common term for a unique numeric identifier, used to refer to a specific
product in inventory or in a catalog.

 Inventory control count that represents one or more items that will be sold
together. For example, a retail bed store would consider one bed frame
with four wheels equal to one SKU (even though the frame and the wheels
come from different suppliers), because a frame is never sold without
wheels, and wheels are never sold alone. Conversely, a frame, a box
spring, and a mattress would be considered three SKUs, because any of the
three items might be sold separately.

 Warehousing item that is unique because of some characteristic (such as

brand, size, color, model) and must be stored and accounted for separate
from other items. Every SKU is assigned a unique identification number
(inventory or stock number) which is often the same as (or is tied to) the
item’s UPC.
 Bazaars?
 Seasonal
 Structured

 Un-structured
 Thematic
 Retailing Strategy
Human Resource
Retail Locations Management

Retail Market Strategy

Financial Strategy

Information and Customer

Distribution Relationship
Systems Management
 Is “Strategy” 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

• Target Market
Customer Needs
• Retail Format
Method for Satisfying Needs
• Bases for Building Sustainable Competitive
Advantage
Defending Position Against Competitors
 Analyzing M&S’ Retail Strategy

What Is Marks and

Spencer:
-Target market?

-Retail offerings (format)?

-Bases for competitive

advantage?

What Threats does M&S

face?
 Profile
 Marks & Spencer (M&S) is a major British
retailer, with over 600 stores in the UK and
295 stores in 40 territories around the world.
 It is the largest clothing retailer in the United
Kingdom, as well as being an upmarket food
retailer.
 It has started expanding into home-ware,
furniture and technology products.

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 Profile
 M&S was the 43rd largest retailer in the world with a
revenue of £9,062.1 million in 2009.
 All international stores are operated under franchise,
with the exception of the stores in the Republic of
Ireland and Hong Kong.
 The first M&S store in central Asia was built in
Kabul, Afghanistan in the 1960s. The store was later
shut down.
 M&S has 19 stores across India and plans to expand
more.
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 M&S Store format
 M&S core stores typically feature a selection of the
company's clothing ranges and a M&S Food hall. The
range of clothing sold and the space given to it
depends on the store's location and customer
demographic (e.g., some London stores do not stock
the Classic Collection, but stock Limited Collection
and a full Autograph range).
 Store format
 Each M&S Food hall sells groceries, which are all
under the Marks & Spencer brand. However, in 2009
the company began selling a limited range of other
brands, such as Coca-Cola, without reducing the
number of M&S goods they sold.
 Hospitality Area
 Most M&S stores feature some sort of hospitality
offering, usually in the form of an M&S Café.
(Formerly known as Café Revive). The café offering
typically includes coffees and teas (all fair trade). The
HA may vary according to location and size:
– Deli Bar (champagne, canapés, seafood, pastries),
– Restaurant (table service)
– M&S Kitchen (traditional home cooking & lunches) or
– Hot Food To Go (burgers, chips, soups)..
 M&S Home stores
 In 2007, M&S started launching dedicated
stores for home furnishings. Several of them
are already in operation.
 M&S “Simply Food”
 M&S is in the middle of a
programme to open four
hundred Simply Food stores
selling predominantly food but
with most also carrying a
small selection of general
merchandise. They are mostly
franchised.
 A large number of outlets are
in airports, railway stations
and petrol stations.
 Multi-channel
 In 2009 M& S has brought all of its shopping
channels under the same management to become a
seamless multi-channel business.
 “We’ve delivered another strong performance in our
Direct business, increasing sales by 27% to £413.3m
and remain on target to achieve £500m by 2010/11.
We’ve also launched ‘Shop Your Way’, a concept to
provide customers with more flexibility and choice in
their delivery options”.
 Why Does a Retailer
Need to Focus on a
Specific Target Market?

Why Not Sell to

Everyone?
Retail Market Opportunities for
Women’s Apparel
 Methods for Segmenting Markets

Buying Situations Geographic Areas

Benefits Sought

Lifestyle, Psychographics
Demographics
Can A Retailer Develop a Sustainable
Competitive Advantage by:

 Dropping the Price of the Merchandise?

 Building a Store at the Best Location?
 Deciding to Sell Some Hot Merchandise?
 Increasing the 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
• Unique
Knowledge
• Loyal
Employees
Vendors,
Suppliers Customers

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 Vendors
More Promotions
 Committed Employees
 Cleaner Stores
 Loyalty

What does loyalty mean?

Is It the same as liking a store?
…Going to the store frequently?
 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
A New trend in differentiation
 Estée Lauder Inc. has developed a
Line specifically and exclusively
for Kohl’s.
 Such “account-specific” new lines
from renowned products brands
will carry huge stakes for both
companies, each of which is facing
stiff and unprecedented new
challenges in retailing.
 
.
 Differentiation
 These as yet moniker-less brands will represent the
cutting edge of the vast experimentation that is
currently happening between manufacturers and
retailers around issues of brand differentiation and
control, and what those levers can accomplish amid
the prevailing homogeneity of the retailing
marketplace. Other examples:
– Levi’s created the Signature line, first for Wal-Mart before
Target and others could begin to sell them.
– VF, the jeans manufacturer, created a new brand called Blu,
specifically for Target stores.
 Growth Opportunities

• Market Penetration
• Market Expansion

• Retail Format Development

• Diversification
­ Related vs. Unrelated
Growth Opportunities
 Key to Success in Global
Retailing
 Domestic market leadership – strong base
 Exploiting core competencies – competitive advantage
– Low cost - Wal-mart, Carrefour
– Fashion Reputation - The Gap, Zara, H&M
– Category dominance - Toys ‘R’ Us, Office Depot
– Unique Image, Brand – Disney, IKEA, Starbucks
 Adaptability
 Global Culture
 Long-term commitment
International Market Entry Strategies

• Direct
Investment
• Joint Ventures
• Strategic
Alliances
• Franchising
 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 & allocate resources

6. Develop a retail mix to implement strategy

7. Evaluate performance and make adjustments

 Elements in a Market Analysis

100

50

0
1s t Qtr 2 nd Qt r 3r d Qtr 4 th Qtr

MARKET COMPETITIVE ENVIRONMENTAL ANALYSIS OF

FACTORS FACTORS FACTORS STRENGTHS &
WEAKNESSES
Size Barriers to entry Technology Management
Bargaining power Economic capabilities
Growth
of vendors Regulatory Financial
Seasonality
resources
Business cycles Competitive Social Locations
rivalry Operations
Threat of Merchandise
superior new Store
formats Management
Customer loyalty
 Benefits of Retail
Strategy Planning
 Provides thorough analysis of the requirements for doing
business for different types of retailers
 Outlines retailer goals
 Allows retailer to determine how to differentiate itself from
competitors
 Allows retailer to develop an offering that appeals to a group
of customers
 Offers an analysis of the legal, economic, and competitive
environment
 Provides for the coordination of the firm’s total efforts
 Encourages anticipation and avoidance of crises
 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
Vendors Competitive Large 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 Store Management
Ability to raise debt or equity Capabilities
financing Management capabilities
Operations: Quality of sales associates
Overhead cost structure Commitment of sales
Quality of operating systems associates to firm
Distribution capabilities
Management information Locations
systems
Loss prevention systems
Inventory control system
Customers
Loyalty of customers
Merchandising Capabilities:
Knowledge and skills of buyers
Relationships with vendors
Capabilities in developing
competencies
 Market Attractiveness/Competitive
Position Matrix
High Medium Low
Maximum Invest to Opportunities
investment challenge investment
leader
Aggressive
Market Attractiveness

Consolidate Build strength investment

position or exit
Selective Cautious Harvest
investment investment or
divest
Cautious
Build on investment
strengths
Protect Harvest or Harvest
position divest or
Minimal
divest
Manage for investment
cash
generation

Competitive Position
 Steps in Using Market Attractiveness -
Competitive Position Matrix

• Define strategic opportunities

• Identify market attractiveness and competitive
position factors
• Assign weight based on importance of factors
• Rate opportunities on market attractiveness
and competitive position
• Calculate scores and evaluate opportunities
 Distribution Types
 Exclusive: suppliers make agreements with one or
few retailers that designate the latter as the only ones
in a specified geographic area to carry certain brands
or products
 Intensive: suppliers sell through as many retailers as
possible
 Selective: suppliers sell through a moderate number
of retailers

68
Special Characteristics Affecting
Retailers

Small
Impulse
Average
Purchase
Sale

Retailer’s
Strategy

Popularity
of
Stores
 How Retailers Add Value
 Breaking Bulk
-Buy it in quantities customers want
 Holding Inventory
-Buy it at a convenient place when you want it
 Providing Assortment
-Buy other products at the same time
 Offering Services
-See/check it before you buy, get credit, return if
damaged.
 World’s Top 10 Retailers
(Report published Jun 1, 2008)

 1. Wal-Mart, USA  6. CVS Caremark, USA

Sales: $374.5 billion Sales: $76.3 billion
Stores: 6,800 Stores: 6,245
 2. Carrefour, France  7. Kroger, USA
Sales: $130 billion Sales: $70.2 billion
Stores: 87,422 Stores: 2,486
 3. Tesco U.K  8. Costco, USA
Sales: $102.6 billion Sales: $64.9 billion
Stores: 3,729 Stores: 520
 4. Metro AG, Germany  9. Target, USA
Sales: $101 billion Sales: $63.4 billion
Stores: 2,221 Stores: 1,591
 5. Home Depot, USA  10. Groupe Auchan, France
Sales: $77.3 billion Sales: $57.7 billion
Stores: 2,258 Stores: 1,140 + 1448

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Strategy for
Creating
competitive
advantage
 Retail Management
Define the Mission

Set Company’s objectives and goals

Design the Business portfolio

Plan Strategies

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 Strategies to gain
Competitive edge
 Operational Excellence
Store Location, ambience, service, choice
 Product differentiation

Brands represented, quality, exclusive?

 Customer Intimacy

Ambience, experience, loyalty

Service, staff, promotions

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 Pricing – Product differentiation
Price
High Medium Low
Premium strategy High-value strategy Super-value
High strategy
Medium Over charging Medium-value Good-value
Quality strategy strategy strategy
Low Rip-off strategy False economy Economy
strategy strategy

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Market entry strategies

 Penetration / Skimming

 Entry barriers

 Exit barriers

76
 Market Expansion Strategy

Product
Existing New

New Market Development Diversification

Market
Existing Market Penetration Product Development

77
 Elements of a
Retail Strategy to be planned
 Organizational Mission

Retailer’s commitment
to a type of business
and to a
distinctive role in the marketplace
 Choosing a Retail
positioning strategy
 A Retailer’s competitiveness and performance
depends on the positioning it chooses in the
marketplace.
 It has to make choices about:
– Cost-side goals: focus on margin and inventory turnover
– Demand-side goals: Which shopper SODs to fulfill?

80
 Cost-Side Positioning
 High service retailing
– High margin, low inventory turnover
– Stresses personal services
 Low price retailing
– Inexpensive products, high inventory turnover
– Minimal service levels
 The ‘winning’ combination: However, the most advanced and
successful retailers – Wal-Mart, Home Depot, Carrefour etc. – are able to
combine low price, high turnover with excellent service as well.
 They generate high ROI in their businesses through continuous
improvements in asset management made possible by highly sophisticated
information systems.
 Cost-side Positioning
 It is assumed that reduction in service output levels e.g.
product selection, personal services, pleasant retail
environment, financial and delivery facilities and location
convenience is a natural characteristic of a low margin/high
turnover retail operation.

 It is a strategy choice that a retailer can make only if its

customers are willing to accept this trade-off – not just for a
short time but over the long term.
Two alternative Retail Strategies

 HighMargin/Low Turnover
Versus
 Low Margin/High Turnover
 Retailer’s Alternative SPMs
 A retailer’s strategic options are:
– margin management (net profit/net sales),
– asset turnover (net sales/total assets)
And/or
– Financial management via financial leverage (total assets/net
worth)
– If there is strong forward pressure on margins due to competitive
forces and economic conditions then asset turnover is considered
to be the better option. This emphasizes on:
– Sales per square foot (Location productivity)
– Sales per employee (Labour productivity
– Sales per transaction (Merchandising/promotion program
productivity)
 Defining SPM
 SPM or the Strategic Profit Model combines the two
decision making areas: Margin management and asset
management
The SPM uses return on assets as the primary
criterion for planning and evaluating a firm's financial
performance. This means:
Net Profit x asset turnover = return on assets
(8.21% in case of Wal-Mart and 10.74 for Tiffany)
Thus return on Assets can be improved by: profit path
or turnover path.
 Strategic Profit Model (SPM)
Net profit Net Sales Net profit
, and
Net sales Total assets Total assets

Net profit Total assets Net profit

, Thus :
Total assets Net worth Net worth

Net profit Net sales Total assets Net profit

Net sales Total assets Net worth Net worth
Turnover Path
 Turnover Path Typology
 Account Receivables
are monies due to retailer from selling merchandise on credit
 Cash: Monies on hand + demand and savings accounts in
banks to which a retailer has immediate access+ marketable
securities such as Treasury Bill
 Other Current Assets
Prepaid Expenses + Supplies
 Fixed Asset: Assets that require more than a year to convert to
cash
Example: Buildings( if owned) + Fixtures (display racks) +
equipment ( such as computer and delivery trucks) + long term
investment such as real estate or stock in other firms
Profit Path
 Profit Path Typology
 Profit Path is ascertained from income statement.
 Net Sales: Total dollars/rupees received by a retailer after all
refunds have been paid to the customer for returned
merchandise.
i.e. Net Sales = Gross Sales - Customers returns - Customer
allowances
 Customer Returns = Value of merchandise that customers
return because of damage, obsolesce, unsuitability etc
 Customer Allowances = Any additional price reduction given
to the customers
 Profit Path Typology
 Gross Margin
– It gives the retailer how much profit it is making on
merchandise sales without considering the expenses
associated with operating the stores.
 SGA expenses:
– Selling Expenses: Sales' staff salaries + commission +
Benefits
– General Expenses: Rent + Utilities + Miscellaneous
Expenses
– Administrative expenses: Salaries of all employees other
than sales people + operation of buying offices + other
administrative expenses
 3 Interrelated measures of profitability
1) Gross margin return on inventory investment (GMROI)
– Equals gross margin percentage x ratio of sales to
inventory (at cost)
– Combines margin management and inventory
management
– Can be calculated on a company, store, department,
product category or SKU (stock keeping unit) basis.
– Helps reduce inventory levels while maintaining sales
through methods such as JTI.
– Establishes that items with widely varying gross margins
can be equally profitable if inventory is scientifically
managed.
 3 Interrelated measures of profitability
2) Gross margin for full time equivalent employee
(GMROL)
– Rising sales per sq. ft. means reducing percentage of
several fixed costs such as rent, utilities, advertising etc.
– Having more salespersons –(though adding to pay-outs)
may actually increase per capita profitability by
leveraging the other fixed costs of the store.
– However, the percentage of per employee profitability
depends on the optimized utilization of all resources (not
just lower salary/benefits).
– Wal-Mart sales per employee (2005): $178,000
– Kmart sales per employee (2005): $136,000
 3 Interrelated measures of profitability
3) Gross margin per square foot (GMROS)
– A measure of how well a retailer is utilizing its unique
asset, the shelf or floor space it allocates to its upstream
channel partners or suppliers.
– A comprehensive way of measuring contribution dollar
per Sq. ft of selling space is DPP (Direct product profit).
– It includes:
 Gross margin a brand allows the retailer to earn
 The sales volume (in units) that particular brand generates
 Amount of shelf/floor space it takes
 Cost incurred on its storage/handling and sales.
 How DPP Optimization can
impact Channel Relations

Applying cost reduction systems at the retail level often

involve changes through the channel which can
impose varying costs on other channel partners:
– Vendor managed inventory System (VMS)
– EDI
– Rent discounting for shopping mall anchor stores in lieu
of increasing footfall.
 Demand-Side positioning
 A retailer can select its positioning based on the customer’s
Service Output Demands it chooses to fulfill and/or
identifying the degree and comparative weightage it gives to
the different SODs. For example:
 Bulk Breaking: Warehouse Stores (Sam’s Club or Costco)
offer a lower price but require the customer to buy larger
volume.
 Spatial convenience: Since most consumers are unwilling to
travel a long way (or go through inconveniences like traffic
jams, parking problems, crowds, physical risk etc.), retailers
like Big Bazaar, Reliance Fresh and Spencer are opening
stores in targeted residential areas – sometimes buying their
own property to avoid high rents.
 Demand-Side positioning
 Waiting/Delivery time: Many grocery retailers do-not-stock
items like fresh milk and juices to avoid out-of-stock
situations. Leading stores maintain a systematic stock control,
shelf replenishment and check-out mechanism to help
shoppers save time, harassment and frustration. This is the key
to building loyalty.
 Since price-sensitive retailers do not wish to maintain ‘idle’
inventories, their suppliers are required to schedule their
production and delivery systems according to the specific
needs of large retailers.
 Demand-Side positioning
 Product Variety: Retailers of all types (be it FMCG, consumer
durables, garments, lifestyle items, furniture, computers, cars,
motorbikes, tyres, medicines or books...) need to offer a good
selection in every category they stock.
 Some retailers (convenience stores or discount stores) opt for
limited assortment of fast moving, low priced items across a
wide variety of goods, while specialty stores go for a in-depth
assortment (Toys R Us,Chrome). This can also be streamlined
to be a niche store, offering an elaborate spread within a very
narrow product segment.
 Demand-Side positioning
 Customer service: Depending on the nature and type of its
target segment classification and overall brand objectives, a
retailer may create a bouquet of customer service options.
 Innovative features that add to the shopper’s buying
experience often acts as a powerful differentiator and builds
brand loyalty for the retailer.
 This also enhances the retailer’s power within the channel and
its salience viz a viz upstream channel partners (suppliers) –
particularly manufacturers who are keen on maintaining and
strengthening their own brand value.
How Retail Industry
is Changing

To Today’s Retailer
 Retailing: High Tech
- Selling Merchandise over the Internet

- Using Internet to manage supply chains

- Analyze POS data to tailor assortments to

stores

- Computer systems for merchandise

planning
 Retailing and globalization
 USA is the world’s largest retail marketplace with 45 to 50 of
the top 100 global chains based there.
 Only 2 of the top 10 – Kroger and Target – are purely national
(only in the US), all the rest have extensive cross border
operations/
 Wall-Mart the world’s most dominant retailer has operations in
Europe, Asia and the Middle East.
 It has a growing presence in China and is planning to enter
India in the near future.

102
Figure A3-1: Factors to Consider When Engaging
in Global Retailing
 Aspects of Globalization
• Source Merchandise From Around
the World

• Sell Merchandise Around the World

• Wal-Mart Operates in U.S., China,
Mexico, UK, Germany
• Carrefour has Stores in 25 Countries
 Characteristics of International Markets

U.S.
U.S. Germany
Germany Japan
Japan
Population
Population(Millions)
(Millions) 266
266 82
82 126
126

Business
BusinessClimate
Climate 33 10
10 24
24
Logistical
LogisticalInfrastructure
Infrastructure Exc.
Exc. Good
Good Avg.
Avg.
 Attractiveness Ratings for
International Growth Opportunities
Competitive Position in International
Growth Opportunities
Evaluation of International
Growth Opportunities
 Evaluation of Retail Market
Opportunities in European Community
High Low

SPAIN
ITALY UNITED KINGDOM
Open

FRANCE NETHERLANDS
MARKETS

GERMANY
Restricted

LUXEMBOURG
BELGIUM IRELAND
PORTUGAL GREECE
DENMARK

GROWTH
 Market Attractiveness Ratings for
Growth Opportunities in Merchandise Categories

Women Junior’ Men’s Children’sFurniture Cons. Soft

Weight ’s(1) s (2) (3) (4) (5) Elec. Home
(6) (7)
Factors
Market size 20 9 7 5 4 5 6 7
Growth 20 4 3 6 5 4 8 6
Vendor power 15 5 4 10 9 2 1 8
Competitive 20 4 3 10 2 5 2 10
intensity
Social trends 25 5 5 6 6 6 4 9
Score 10 54 44 72 50 48 43 80
0 5 0 5 5 5 5
 Competitive Position Ratings
in Merchandise Categories
Wome Junior’ Men’s Children’ Furnitur Cons. Soft
Weight n’s(1) s (2) (3) s (4) e Elec. Home
Factors (5) (6) (7)

Location 20 9 9 8 6 4 2 4
Vendor 25 8 7 5 7 4 3 7
relationship
Costs 20 8 8 5 6 3 1 7
Skills of 10 6 7 5 9 5 4 8
buyers
Image with 25 8 8 5 6 5 2 8
customer
Score 10 80 78 56 65 41 22 67
0 0 5 0 5 5 5 5
 Evaluation of Merchandise
Category Opportunities

1,000
High Medium Low
High

Soft home
 Men’s
Market Attractiveness

 clothing
667

Women’s Children’s
Medium

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

clothing
Low

1,000 667 333

Successful Global
Retail Concepts

113
H&M case
study
 H & M case study

 H&M -- Hennes & mauritz -- is a very successful and trendy

Swedish fashion group.
 A competitor of Zara, H&M’s distinctive strategy has been
developed along:
• expansion, through the set up of a proprietary distribution
network of centrally controlled stores
• price-competitiveness and profitability, through very
efficient management of production and logistics
• very short lead times which ensure quick response to market
trends and reduction of stocks

 Vital statistics
 H&M’s first store was opened in Sweden in 1947.
 H&M offers fashion for women, men, teenagers and children.
 It currently has over 2000 retail outlets across 37 countries and
is continuing to grow despite the economic global slow down.
 The collections are created centrally by around 100 in-house
designers together with buyers and pattern makers.
 H&M also sells own-brand cosmetics, accessories and
footwear.
 The stores are refreshed daily with new fashion items.
 In Sweden, Norway, Denmark, Finland, the Netherlands,
Germany and Austria H&M also uses Internet and catalogue
sales.
 Business dynamics
 H&M does not own any factories, but instead buys its goods
from around 700 independent suppliers, primarily in Asia and
Europe.
 H&M has about 16 production offices around the world,
mainly in Asia and Europe.
 H&M employs about 76,000 people.
 The turnover in 2009 was SEK 118,697 million.
 H&M was a pioneer in pursuing a strategy of vertical
marketing system in the distribution network.
 This has allowed the company to directly collect and fully
exploit information about sales and consumers in order to
improve and accelerate response to the market.
 H & M has maintained continuous expansion through search
for most promising markets, cost-efficient production of
goods, and reduction of lead times. H&M is also an example
of competitive advantages brought by integrated e-business
solutions.
 Procurement and logistics can track sales and stock status as,
owning the stores, they share a common IT platform.
 Speed to store
 H& M’s high tech integrated systems and efficient
supply chain management allow the company both to
react quickly whenever new trends are identified and
to avoid procurement of goods which are not
appreciated by the market.
 H&M has been able to reduce lead times while

ensuring adequate stock management.

Retail Environment Differs
Across the Globe
US Japan
Density High Medium

Store Size Big Small

Role of Low High

Wholesaling

Efficiency High Low

Focus on the
Shopping
Experience
 Customer Service
 Activities undertaken by a retailer in
conjunction with the basic goods and
services it sells.
 Store hours
 Parking
 Shopper-friendliness
 Credit acceptance
 Salespeople

122
Eliminating Shopper Boredom

123
 Relationship Retailing
 Seek to establish and maintain long-term bonds with
customers, rather than act as if each sales transaction is a
completely new encounter

– Concentrate on the total retail experience

– Monitor satisfaction
– Stay in touch with customers
– Develop customer database

124
 Key Drivers
 Consumer Pull
 Rising incomes
 Explosion of media
 Change in consumer behavior
 Consumerism cycle
 The Rural market: Waking up
 Supply chain establishment
 Entry of Corporate sector
 Expansion of family owned businesses
 New Entrepreneurs
 Reducing Brand dominance
 Foreign retailers seeking entry
 Technological impact
125
Image Based Positioning

An image represents
how a given retailer is
perceived
by consumers and others
 Different Approaches

 Mass merchandising is a positioning approach

whereby retailers offer a discount or value-oriented
image, a wide or deep merchandise selection, and
large store facilities
 Niche retailing occurs when retailers identify specific
customer segments and deploy unique strategies to
address the desires of those segments rather than the
mass market
 Selected Retail
Positioning Strategies
 Target Market Selection

Three techniques
Mass marketing
Concentrated marketing
Differentiated marketing
Decision Variables for Retailers
Customer Service

Merchandise
Store Design Assortment
and Display
Retail
Strategy
Pricing Location

Communication
Mix
 Shops of Distinction

Godiva Chocolate shop

Jean-Philippe Patisserie
 Shops of Distinction

Saks 5th Avenue window display

Harrods of London

132
Retailers who create the finest
customer experience attract
high end brands.

133
 Malls of Distinction

Dubai continually raises the bar

134
135
136
137
138
139
 RETAIL STRATEGY
RETAIL STRATEGY
 A clear and definite plan outlined by the retailer to
tap the market
 A plan to build a long-term relationship with the
consumers
 Process of strategy formulation in retail is the same
as that for any other industry
 It starts with the retailer defining or stating the
mission for the organization
 The mission is at the core of the existence of the
 RETAIL STRATEGY

1. Establish Mission
2. Analyze Situation Objectives
3. Identify Options
4. Set Objectives
5. Obtain & Allocate Resources
6. Develop Implementation Plan
7. Monitor Progress & Control
 RETAIL STRATEGY
DEFINE MSSION OR PURPOSE
 Mission statement is a long term purpose of the
organization
 It describes what the retailer wishes to accomplish
in the markets in which he chooses to operate
 Retailers mission statement would normally
highlight the following
1. The products and services that will be offered

2. The customers who will be served

3. The geographic areas that the organization chooses
 RETAIL STRATEGY
CONDUCT A SITUATION ANALYSIS

 Once the retail mission is defined, the retail

organization needs to look inwards
 Understand what its strengths and weaknesses are
 Look outwards to analyze its opportunities and
threats
 Situation analysis helps the retailer determine his
position and his strengths and weaknesses
 Helps formulate a clear picture of the advantages
 RETAIL STRATEGY
IDENTIFY OPTIONS / STRATEGIC
ALTERNATIVES

 After determining the strengths and weaknesses

vis-à-vis he environment retailer needs to consider
various alternatives available to tap a particular
market
 Igor Ansoff presented a matrix which looked at
growth opportunities
 He focused on firm’s present and potential products
in the existing and new markets
 RETAIL STRATEGY
IDENTIFY OPTIONS / STRATEGIC
ALTERNATIVES

The alternatives available to a retailer are :

 Market Penetration
 Market Development
 Retail Format Development
 Diversification
 RETAIL STRATEGY
EXISTING NEW

MARKET PENETRATION MARKET DVELOPMENT /

EXPANSION
• Increase in the basket
EXISTING

size • New market Segments with

• Increase the customers existing markets
• Increase the purchase • New customer base
frequency

RETAIL FORMAT DIVERSIFICATION

DEVELOPMENT
• New retail formats directed at
NEW

• New format for existing new market segments

customers
 RETAIL STRATEGY
MARKET PENETRATION
 Strategy may focus either on:

- Increasing the number of customers

- Increasing the quantity purchased by customers(basket
size)
- Increasing the frequency of purchase

 Increasing the number of customers can be achieved by adding new

stores and by modifying the product mix
 Another approach is to encourage salespeople to cross sell
 Market penetration strategy is the least risky one, since it leverages
many of the firm’s resources and capabilities
 However, market penetration has limits
 Once the market approaches saturation, a new strategy needs to be
pursued if the firm is to continue growth
 RETAIL STRATEGY
MARKET EXPANSION / DEVELOPMENT
When a retailer is said to reach out to new market segments or
completely changes his customer base

 This strategy involves :

- Tapping new geographical markets
- Introducing new products to the existing range that appeal to a
wider audience
 Expansion by adding new retail stores to existing network is an example of
geographical expansion
 Introducing a pharmacy in a supermarket (eg. The medicine Shoppe at the
Haiko Supermarket in Mumbai) is an example of a retailer introducing new
products, appealing o a different audience
 Another example is McDonald’s who introduced ice creams for Rs.7
 This not only created add on sales, but also brought in customers who had
the perception that McDonald’s is an expensive fast food restaurant
 RETAIL STRATEGY
RETAIL FORMAT DEVELOPMENT
When a retailer is said to introduce new retail format to
customers

 Example fast food retailers like McDonald’s and Subway

offer limited menus inside large department stores
 Another example is bookstore chain Crosswords, opening
smaller format stores by the name Crossword Corner at
Shopper’s Stop
 Strategy may be appropriate if the retailer’s strengths are
related to specific customers, rather than to specific products
 In this situation retailer can leverage its strengths by
developing a new product targeted to his existing customers
 RETAIL STRATEGY
SET OBJECTIVES
 Translation of mission statement into operational terms
 Indicate
1. Results to be achieved
2. Give direction to and set standards for the measurement of performance
3. Management sets both long term and short term objectives
4. One or two year time frames for achieving specific targets are short term objectives
5. Long term objectives are less specific and reflect the strategic dimension of the firm

Two important focus areas of retailers - Market Performance

- Financial Performance
Objectives are set keeping these focus areas in mind
 Sales volume targets
 Market hare targets
 Profitability targets
 Liquidity targets
 Returns on investment targets
 RETAIL STRATEGY
OBTAIN AND ALLOCATE RESOURCES NEEDED TO COMPETE

 Resources needed by a retailer - Human Resources

- Financial Resources
1. Human Resource
 HR plan must be consistent with overall strategy of the organization
 HR management focuses on issues such as recruiting, selecting, training,
compensating, and motivating personnel
 These activities must be managed effectively and efficiently

2. Financial Resources
 Takes care of the monetary aspects of business
 Shop rent, salaries and payments for merchandise
 RETAIL STRATEGY
DEVELOP THE STRATEGIC PLAN

At this stage strategy is determined through which retailer will achieve

objectives

1. The retailer determines and defines his target market

2. The retailer finalizes the retail mix that will serve the audience

 Target Market – that segment of consumer market that the retail

orgn.decides to serve

 No definite process of deciding and selecting the target market

 Most retailers look at the entire market in terms of both size and
consumer segments to which it might appeal
 RETAIL STRATEGY
DEVELOP THE STRATEGIC PLAN

At this stage strategy is determined through which retailer will achieve objectives

1. The retailer determines and defines his target market

2. The retailer finalizes the retail mix that will serve the audience

 Target Market – that segment of consumer market that the retail orgn.decides to serve

 No definite process of deciding and selecting the target market

 Most retailers look at the entire market in terms of both size and consumer segments to
which it might appeal

 From these segments he identifies smaller number of segments that appear promising
 These become possible targets

 Variables like growth potential, investment needed to compete, the strength of competition, etc are evaluated.

 This enables the retailer to arrive at the best alternative that is most compatible with the organizations
resources and skills
 RETAIL STRATEGY
DEVELOP THE STRATEGIC PLAN

 Considerations for successful market segmentation

1. Measurable : The segment should be measurable and identifiable?

2. Accessible : Focusing market marketing efforts on a particular market

segment should have a positive impact towards eliciting the desired
response

3. Economically viable : The expense and efforts of focusing the

marketing efforts in potential segments should be justified.

4. Stable : The consumer characteristics are indicators of market potential.

Hence stable indicators to be considered.
 RETAIL STRATEGY
DEVELOP THE STRATEGIC PLAN

After choosing the target market the retail mix needs to be developed

This process involves

 the determination of the merchandise mix
 the pricing policy
 types of location the retail stores would be located at -
 services to be offered -
 communication platform that would be adopted by the retailer

Next is the formulation of positioning strategy. This refers to

 the image the retailer wants the customers to have in their minds about
 the products and services
 RETAIL STRATEGY
IMPLEMENT THE STRATEGY, EVALUATE AND CONTROL
 Implementation is the key to success of any strategy

 Effective implementation of the retailers desired positioning

requires

1. Every aspect of stores to be focused on the target market

2. Merchandising must be single-minded
3. Displays must appeal to target market
4. Advertising must talk to the target market
5. Personnel must have empathy for the target market
6. Customer service must be designed with the target customer in
mind
 RETAIL STRATEGY
IMPLEMENT THE STRATEGY, EVALUATE AND CONTROL

After implementation the management needs feedback and should focus on

1. Performance
2. Effectiveness of long term strategy by periodic evaluation
3. Ensuring that the plans do not degenerate into fragmented ad-hoc efforts
4. Ensuring that all efforts are in harmony with he overall competitive strategy of
business

Management can also use the process to decide on

5. Any future policy change

6. Modifications if any, in the plan, to ensure that the combination of the retailing
mix variables support the firms strategy
 RETAIL STRATEGY
INTERNATIONAL EXPANSION – A GROWTH STRATEGY

Factors facilitating the rise of international retail trade

1. Removal of trade barriers between countries

2. The rise of consumerism

 RETAIL STRATEGY
Concept of international retailing (RETAIL INTERNATIONALIZATION)

 More than just replicating retail stores in other countries and markets

 Defined as “The management of retail operations in markets which are different from
each other in their regulation, economic development, social conditions, cultural
environment and retail structure.”

 Typically retailers start as regional players

 They develop operational efficiencies as they expand in size

 Growth in size gives them financial resources

 International expansion happens when retailer reaches a dominance in domestic market

 Saturation in domestic market is also a reason for retailer to look at international

expansion
 RETAIL STRATEGY
INTERNATIONAL EXPANSION – A GROWTH STRATEGY

Decision on entering a new market

 Confidence of having a sound understanding of that market

 Understanding of the cultural and buying habits of the local

population

 Ability to use technology, systems and processes available in that

market

 Understanding of the expected growth rates, density of

population, income levels
 RETAIL STRATEGY
METHODS OF ENTERING A NEW MARKET

 Export

1. Retailer having a distinct product / own brand that may be attractive

 Franchising / licensing

1. Granting permission/license to a company in target country to use the property

of the licensor

2. Property is intangible such as trade marks, patents and production techniques

3. Licensee pays a fee in exchange for the rights to use the intangible property

4. For franchising to be successful it is necessary for careful selection of partners

5. Partners should share the same understanding of the parent organizations vision
mission, goals and the marketing plans and strategies
 RETAIL STRATEGY
METHODS OF ENTERING A NEW MARKET

 Joint Venture

Strategic partnership between a local retailer and a international / foreign player

Benefits / Advantages

International player learns from expertise of domestic partner

Domestic retailer learns from foreign player the international practices

 Key issues

Ownership, control, length of agreement, pricing, technology transfer, government

regulations.

Many joint ventures involve one local partner and one foreign player

At times for convenience two retailers can also form a JV company to enter new market
 RETAIL STRATEGY
METHODS OF ENTERING A NEW MARKET

 Acquisitions

One organization acquiring another organization

Easy way of entering non domestic market without any complications

Considerations : management structure

new operating culture
financial burden

Example : Shopper’s stop acquiring bookstore chain Crossword,

Wal-mart acquiring ASDA

 Mergers

Imply : Coming together of two organizations to form a combined entity

Example : Retail giants Carrefour and Promodes in Europe

 RETAIL STRATEGY
METHODS OF ENTERING A NEW MARKET
 Organic growth

Replication of retail format in a new non domestic market within the

regulatory framework of the new market.

It gives retailer the kind of control that he requires

It also requires a great deal of investment

 Factors affecting decisions on entry in particular markets

Position in the domestic market : Expertise, leader, new entrant

Access to global systems
Ability to adapt to requirements of global markets
Long term commitment towards business
 RETAIL STRATEGY
RETAIL VALUE CHAIN

Retail Field : Very challenging and dynamic

Growth : Retailer grows from a single shop to a chain of retail stores.
From a local to a regional and national presence.
Strategy and planning becomes very important
Retailer should have a clear focus and strategy

Retail Strategy Models : Retailer can either become a pentagon player or a triangle
player

 Pentagon : The retailer’s focus on

- Product Image
- Place
- Price / Value
- People
- Communications
 RETAIL STRATEGY
RETAIL VALUE CHAIN

 Triangle : The retailer’s focus on

- Systems
- Logistics
- Suppliers

 Above approaches to developing strategies are perhaps appropriate in mature

marketplace
 At present , retail in India is oriented towards the mass market
 As such the retailer must consider all aspects of strategy development, such as
product , price, place, communication and the supply chain
 There is an absence of a robust infrastructure and inadequate capabilities of the service
providers in India
 Thus the retailer must necessarily invest in creating the appropriate support structure
for its operations
 RETAIL STRATEGY
RETAIL VALUE CHAIN

SUPPORT FUNCTION

SUPPLIER THIRD
PARTY RETAIL CUSTOMER CUSTOMER
S OPERATIONS MGMT
LOGISTICS S

SYSTEMS