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

2. 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

3. 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

4. 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

5. Figure 5-1: The Wheel of Retailing

6. 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

7. 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

8. 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

9. Figure 5-2: Retail Strategy Alternatives

10. Figure 5-3: Scrambled Merchandising by a Shoe Store

11. 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

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

13. Figure 5-4: The Retail Life Cycle

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

15. 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

16. Figure 5-5: Shopping Cart Sign

17. 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

18. 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

19. 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.

20. 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

21. 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

22. 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

23. 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

24. 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

25. Figure 5-8: Harrods

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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).

34. 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

35. 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

36. 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 percent gross margin versus 22 percent for supermarket and 50 percent for department store

37. 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.”

38. 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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