1. Chapter 5 Retail Market Strategy McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 5-2 Questions ■What is a retail strategy? ■What is a retail market strategy and what are its components? ■Define target market and retail format. ■How is the development of a retail format dependent on the needs of the target market? ■How can a retailer build a sustainable competitive advantage? ■What is strategic retail planning and what are the steps involved in this process?

3. What is a Retail Strategy? ■The retail strategy indicates how the firm plans to focus and use its resources to accomplish its objectives. ■Strategic Decisions Are: Made infrequently Long-term Require significant investment Not easily reversed ■Key strategic decision areas include determining a market strategy, financial strategy, location strategy, organizational structure and human resource strategy, information systems and supply chain strategies, and customer relationship management (CRM) strategies. 5-3

4. What is a Retail Market Strategy ■A Retail Market Strategy is a statement identifying 1) the retailer's target market ; 2) the retailer’s format ; and 3) the bases upon which the retailer plans to build a sustainable competitive advantage. 5-4

5. 5-5 Elements in a Retail Market Strategy © image100 Ltd ■Target Market the market segment(s) toward which the retailer plans to focus its resources and retail mix ■ Retail Format The nature of the retailer’s operations – its retail mix ■Sustainable Competitive Advantage an advantage over competition that is not easily copied and thus can be maintained over a long time.

6. 5-6 Why Does a Retailer Need to Focus on a Specific Target Market? Why Not Sell to Everyone? The Target Market

7. 1-7 The Retail Format (Retail Mix) Customer Service Store Design and Display Merchandise Assortment Communication Mix LocationPricing Retail Mix

8. 5-8 Analyzing McDonalds’ Retail Market Strategy Target market? Retail format (mix)? Bases for competitive advantage? The McGraw-Hill Companies, Inc./John Flournoy, photographer

9. 5-9 Analyzing Chico’s Retail Market Strategy Target market? Retail format (mix)? Bases for competitive advantage? The McGraw-Hill Companies, Inc./John Flournoy, photographer

10. 5-10 Can A Retailer Develop a Sustainable Competitive Advantage by: ■Dropping the Price of their 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?

11. 5-11 Opportunities for retailers to develop sustainable competitive advantages ■Customer Loyalty ■Location ■Human Resource Management ■Distribution and Information Systems ■Unique Merchandise ■Vendor Relations ■Customer Service PhotoLink/Getty Images

12. 5-12 What does loyalty mean? Is It the same as liking a store? …Going to the store frequently? Customer Loyalty

13. 5-13 Customer Loyalty ■Customer Loyalty is more than simply liking one retailer over another ■When a customer is loyal he/she will be reluctant to patronize competitive retailers ■Retailers build loyalty by: Developing a strong brand for the store or store brands Creating an emotional attachment with customers through loyalty programs

14. 5-14 Location ■Why is location potentially a sustainable competitive advantage? Location is a critical factor in consumer selection of a store. It is a competitive advantage that is not easily duplicated.

15. 5-15 Human Resource Management ■Knowledgeable and skilled employees committed to the retailer's objectives are critical to building a sustainable competitive advantage ■What can retailers do to maintain effective, committed employees? Recruit and Train Talented Employees Develop a positive organizational culture

16. 5-16 Distribution and Info Systems Flow of Information Vendor Distribution Center Store Retailers want to get their customers the merchandise they want, when they want it, in the quantities that are required, at a lower delivered cost than their competitors. Retailers can achieve these efficiencies by developing sophisticated distribution and information systems.

17. 5-17 Unique Merchandise: Private Labels ■Many retailers realize a sustainable competitive advantage by developing private-label brands (also called store brands), which are products developed, marketed, and available only at that retailer Sears’ Kenmore – appliances Kmart’s Martha Stewart – home JCPenney’s Arizona -- jeans Jules Frazier/Getty Images Rob Melnychuk/Getty Images Jacobs Stock Photography/Getty Images

18. 5-18 Vendor Relationships ■By developing strong relations with vendors, retailers may gain exclusive rights: ■to sell merchandise in a specific region ■to buy merchandise with better terms than competitors ■to receive merchandise in short supply. Relationships with vendors, like relationships with customers, are developed over a long time and may not be easily offset by a competitor.

19. 5-19 High Quality Customer Service ■Offering Good Service Consistently is Difficult to Achieve. Why? People Are Not Machines -- Inconsistent Retail Sales Associates At Bottom of Labor Pool ■Goes Beyond Hiring Good People at High Wages and Training Them ■Must build an Organizational Culture where good service is considered a valuable asset. ■This takes time and effort.

20. 5-20 What is Strategic Planning and Why is it Important? “If you don’t know where you are going, you might wind up someplace else.” Yogi Berra ■Strategic planning is the process of maintaining a strategic fit between a retailer’s objectives and resources and its changing environment. ■A clearly defined plan of action is an essential ingredient in all forms of business management.

21. 5-21 Define the Mission Conduct a situation analysis (SWOT): Analyze Internal Strengths and Weaknesses Analyze External Opportunities and Threats Establish Specific Objectives Implement Plans and Evaluate Results Develop a Retail Mix to implement the market strategy Develop Retail Strategies Market strategy, Financial strategy, H R strategy, etc. Stages in the Strategic Retail Planning Process

22. 5-22 Step 1: Define the Mission Statement ■What is a mission statement? A basic description of the fundamental nature, rationale, and direction of the firm. Answers the question, “what kind of business are we in.”

23. 5-23 Examples of Retailer Mission Statements “The mission of Gifts-to-Go is to be the leading retailer of higher-priced gifts in the Chicago area and to provide a stable income of $100,000 per year for the owner.” “Moore’s Bicycle Shop is dedicated to bringing the non- cyclists into the sport by matching their recreational needs with the most economical bicycle that will meet or exceed their anticipated cycling demands. While we are capable of serving the professional both in terms of product and services, the entry level cyclists and family cyclists are our focuses.”

24. 5-24 Step 2: Conduct a Situation Analysis: (SWOT) ■This is a complete analysis of the firm’s situation which assesses the internal strengths and weaknesses of the retail business and the external opportunities and threats in the retail environment. ■Internal analysis (controllable factors) – assess the firm itself to identify strengths and weaknesses ■External analysis (uncontrollabe factors) – assess the firm’s external environment to identify opportunities and threats ■Identify ways to build on a strength, correct a weakness, exploit an opportunity, or avoid a threat.

25. 5-25 Strengths and Weaknesses Analysis Management Capability: Capabilities and experience of top management Depth of Management--capabilities of middle management Management’s commitment to firm Financial Resources: Cash flow from existing business Ability to raise debt or equity financing Operations: Overhead cost structure Quality of operating systems Distribution capabilities Management information systems Loss prevention systems Inventory control system Merchandising Capabilities: Knowledge and skills of buyers Relationships with vendors Capabilities in developing private capabilities Store Management Capabilities Management capabilities Quality of sales associates Commitment of sales associates to firm Locations Customers Loyalty of customers

26. 5-26 Situation Analysis of Gifts to Go ■Internal Analysis: Strengths and Weaknesses Management Capability – Limited Financial Resources – Good Operations – Poor Merchandise Capabilities – Good Store Management Capabilities – Excellent Locations – Excellent Customer Loyalty – Good Customer Database – Good

27. 5-27 Situation Analysis of Gifts to Go ■External Analysis: Opportunities and Threats Development of electronic channel by traditional bricks and mortar retailers (-) Many competitors in the area including primary department stores, craft galleries, catalogs and internet retailers (-) Gifts have highly seasonal demand. (-) Chicago is an attractive market for upscale gifts. (+) Relatively expensive gifts are not affected much by the economy. (+) Opportunities for differentiation (+)

28. 5-28 Step 3: Establish Objectives ■Objectives are the performance results that the retailer wishes to achieve within a given time period. ■Can be stated in terms of sales volume, market share, profit margin, return on assets, return on net worth, sales per square foot, sales to stock ratio, new store openings. ■Should be measurable, attainable, specific, and consistent with the organizational mission.

29. 5-29 Step 4: Develop Retail Strategies ■A retail strategy indicates how the retailer plans to focus its resources to accomplish its objectives. ■Key strategic decision areas for retailers include the determination of marketing strategy, financial strategy, location strategy, organizational structure and human resource strategy, information systems and supply chain strategies, and customer relationship management (CRM) strategies. ■These decisions are strategic because they involve committing significant resources over the long term and are not easily changed.

30. 5-30 Step 5: Develop a Retail Mix to Implement the Strategy ■The retail mix includes the decision variables retailers use to satisfy customer needs and influence their purchase decisions. ■Elements include: the types of merchandise and services offered, merchandise pricing, advertising and promotional programs, store design, merchandise display, assistance to customers provided by salespeople, and convenience of location ■These decisions are tactical because they tend to focus on the day to day operations of the retail firm

31. 5-31 Step 6: Evaluating Performance and Making Adjustments ■What is Performance Evaluation? ■Evaluation - Involves measuring the results of the actions from implementation and comparing them with objectives.