CHAPTER 5: RETAIL INSTITUTIONS BY STORE-BASED STRATEGY MIX Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall 1

Chapter Objectives To describe the wheel of retailing, scrambled merchandising, and the retail life cycle and to show how they can help explain the performance of retail strategy mixes To discuss some ways in which retail strategy mixes are evolving To examine a variety of food-oriented retailers involved with store-based strategy mixes To study a range of general merchandise firms involved with store-based strategy mixes

Retailer Strategy Mix A strategy mix is the firm’s particular combination of: store location operating procedures goods/services offered pricing tactics store atmosphere customer services promotional methods

Earning Destination Retailer Status Examples of destination stores include IKEA Some combination of price-oriented and cost efficient, innovative or exclusive merchandise, and superior customer service Wide or deep merchandise strategy

Figure 5-1: The Wheel of Retailing

Lessons of the Wheel of Retailing Do not lose sight of your prime customer’s price consciousness Beware of the dangers in upgrading target markets– Old segment gets “sticker shock” and new segment does not accept retailer’s revised positioning Do not create opening for new cost-conscious retailer to emerge Employ customer benefit costing to weigh the cost and benefits of specific service upgrades Use unbundled pricing to separately charge for select services such as delivery, installation etc. Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

Methods of Cost Containment Standardizing procedures, store layouts, store size, and product offerings; centralized buying Using secondary use locations (existing store fixtures, storefronts, carpeting); placing stores in smaller communities; using inexpensive construction materials (honest architecture) Using plainer fixtures and displays (cut case); reusing fixtures from closed stores

Methods of Cost Containment (cont) Joining cooperative buying and advertising programs; increased use of the Web versus traditional advertising and catalogs Self-service operations; increased use of part-time personnel Reduced product proliferation

Figure 5-2: Retail Strategy Alternatives

Figure 5-3: Scrambled Merchandising by a Shoe Store

Why Scrambled Merchandising? (Format Blurring) Desire for one-stop shopping format. Concern to adopt “hot” products to increase store traffic Looking to increase store sales per square foot and same store sales especially in a recessionary period Computer electronic retailers need to offset maturity of businesses and reduced price levels Looking to make up for lost sales due to Web Desire for cross selling opportunities Looking for high gross profit businesses

Retail Life Cycle Retail institutions pass through identifiable life stages introduction growth maturity decline

Figure 5-4: The Retail Life Cycle

How Retail Institutions Are Evolving Mergers, diversification, and downsizing Cost-containment and value-driven retailing

Mergers, Diversification, and Downsizing Mergers: combinations of separately owned firms (e.g., Sears Holdings– Sears, Kmart and Lands’ End) Diversification: retailers become active in businesses outside their normal operations (e.g., Nordstrom Rack, Off Sak Downsizing: unprofitable stores are closed or divisions are sold off

Figure 5-5: Shopping Cart Sign

Table 5-1: Store-Based Retail Strategy Mixes Food-Oriented Convenience store Conventional supermarket Food-based superstore Combination store Box (limited-line) store Warehouse store General Merchandise Specialty store Traditional department Full-line discount store Variety store Off-price chain Factory outlet Membership club Flea market

Convenience Store Strategy Mix Location Neighborhood Prices Average to Above average Atmosphere & Services Average Merchandise Medium width and low depth of assortment; average quality Promotion Moderate

Conventional Supermarket Strategy Mix Location Neighborhood Prices Competitive Atmosphere & Services Average Merchandise Extensive width and depth of assortment; average quality; manufacturer, private, & generic brands Promotion Heavy use of newspapers, flyers, and coupons.

Food-Based Superstore Strategy Mix Location Community shopping center or isolated site Prices Competitive Atmosphere & Services Average Merchandise Full assortment plus health and beauty aids and general merchandise Promotion Heavy use of newspapers, flyers

Combination Store Strategy Mix Location Community shopping Center or isolated site Prices Competitive Atmosphere & Services Average Merchandise Full assortment plus health and beauty aids and general merchandise Promotion Heavy use of newspapers, flyers

perishables; few national Box Store Strategy Mix Location Neighborhood Prices Very low Atmosphere & Services Low Merchandise Low width and depth of assortment; few perishables; few national brands Promotion Little to none

Warehouse Store Strategy Mix Location Secondary site, often in industrial area Prices Very low Atmosphere & Services Low Merchandise Moderate width and low depth of assortment; emphasis on manufacturer brands bought at discount Promotion Little to none

Specialty Store Strategy Mix Location Business district or shopping center Prices Competitive to Above average Atmosphere & Services Average to excellent Merchandise Very narrow width and extensive depth of assortment; average to good quality Promotion Heavy use of displays Extensive sales force

Figure 5-8: Harrods

Traditional Department Store Strategy Mix Location Business district, shopping center or isolated store Prices Average to Above average Atmosphere & Services Good to excellent Merchandise Extensive width and depth of assortment; average to good quality Promotion Heavy ad and catalog use; direct mail; personal selling

Full Line Discount Store Strategy Mix Location Business district, shopping center or isolated store Prices Competitive Atmosphere & Services Slightly below average to average Merchandise Extensive width and depth of assortment; average to good quality Promotion Heavy on newspapers; price-oriented; selling

Variety Store Strategy Mix Location Business district, shopping center or isolated store Prices Average Atmosphere & Services Below average Merchandise Good width and some depth of assortment; below-average to average quality Promotion Use of Newspapers

Off-Price Chain Strategy Mix Location Business district, shopping center or isolated store Prices Low Atmosphere & Services Below average Merchandise Moderate width and poor depth of assortment; average to good quality; low continuity Promotion Use of newspapers; brands not advertised; limited selling

Off Price Retailing Strategy Pay vendor quickly with no promotional allowances, cooperative advertising funds, chargebacks, or markdown monies Do not promote brand name so as to anger department and specialty shops which are vendor’s traditional customers Buy all of vendor’s excess inventory, cancelled orders, returns regardless of color, size or style distributions

Off Price Retailing Strategy (cont) Pay 10 to 20 percent of vendor’s traditional wholesale $500 jacket purchased for $50 and sold for $100; versus sold for $250 less allowances Can also arrange for vendor to produce special goods for off-price retailer to reduce loss on fabrics, and to keep subcontractors busy

Factory Outlet Strategy Mix Location Out of the way site or discount mall Prices Very low Atmosphere & Services Merchandise Moderate width and poor depth of assortment; low continuity Promotion Little

Factory Outlet Strategy Factory outlet as an outlet for unsold merchandise at traditional stores (ends, off season, returns, etc). Unspoken issue– making goods especially for factory outlet (less complaints from traditional retailers, but issue of comparative value). Can also diminish value of brand (Coach).

Factory Outlet Strategy (cont) Factory outlet as a means of bypassing off-price chains; also to control geographic distribution. Factory outlet as a means of attracting another market segment that retailer would normally not access. Factory outlet malls as cumulative attraction

Membership Club Strategy Mix Location Isolated store or secondary site Prices Very low Atmosphere & Services Merchandise Moderate width and poor depth of assortment; low continuity Promotion Little, some direct mail

Membership Club Strategy Costco, BJ’s and Sam’s Club are key players Membership fee accounts for 85 percent to 100 percent of membership outlet’s profits Costco- 14-16 percent gross margin versus 22 percent for supermarket and 50 percent for department store

Membership Club Strategy (cont) Will not accept higher profit margin due to concern for keeping 85 percent membership retention rate Response to Wall Street analysts that Costco is “too good to its customers and too good to its employees.”

Flea Market Strategy Mix Location Isolated store or secondary site Prices Very low Atmosphere & Services Merchandise Extensive width and poor depth of assortment; low continuity; variable quality Promotion Limited

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