Retail Strategy

Prof. Sandeep Hegde

 Objectives
• The importance of strategy in retail
• The strategic planning process
• International expansion as a growth
opportunity
• The concept of retail branding
• The retail value chain
 Strategy – The Retail
Perspective
• Strategos – the art of the general

• A retail strategy is a clear and definite plan

that the retailer outlines to tap the market and
build a long-term relationship with the
customers.
 What is a Retail Strategy?
• It is a statement identifying the retailer’s
target market, the format the retailer plans
to use to satisfy the target market’s needs,
and the bases upon which the retailer
plans to build sustainable competitive
advantage.
 Elements in a Retail Strategy
• Retail target market – the market segments
toward which the retailer plans to focus its
resources and retail mix; a group of customers
with similar needs
• Retail format – the retailer’s type of retail mix
(nature of merchandise/services offered, pricing
policy, advertising and promotion program,
approach to store design and visual
merchandising, customer service and typical
location
 Elements in a Retail Strategy
contd.
• Sustainable competitive advantage – an
advantage over competition that can be
maintained over a long time; a key to long-
term financial performance
 Example of Retail Strategy
• Starbucks – a national chain of gourmet
coffee cafés, generates annual sales of
over $500M. Friendly knowledgeable
counter servers called baristas (Italian for
bartenders), educate customers about
Starbuck’s products. The company has
entered into some creative partnerships to
put its cafes in Nordstrom and Barnes and
Nobles stores and serve its coffee in
United Airlines
Factors influencing how to compete
• Competitive environment: mature, fast
changing, competitively intense
• Customer value: what is especially valued by
customers? What determines customer
satisfaction?
• Business competences: how do the
competences of the business relate to what’s
valued by customers?
• Stakeholder expectations: do they place any
constraints on choice of strategy?
 Competitive strategy is
• The basis on which a business (unit) might
achieve competitive advantage in it’s market
• Competitive advantage is defined by
meeting customer needs more effectively, in
ways which competitors find difficult to
imitate
• Customer needs are defined by lower price
or higher quality/more added value
 Determines
The building blocks of Competitive
Position
Competitive
Strength
As source of Competitive
Advantage

Valuable and rare (consumer perspective)

Some become CORE Hard to copy and nonsubstitutable
COMPETENCIES (competitor perspective)

Determine
CAPABILITIES Functional areas: Manufacturing, distribution

RESOURCES Tangible: Financial. Intangible: Reputation

 The VRIO Framework

If a firm has resources that are:

• valuable,
• rare, and
• costly to imitate, and…
• the firm is organized to exploit these resources,
then the firm can expect to enjoy a sustained
competitive advantage.
Applying the VRIO Framework

The Question of Value

• Does the resource enable the firm
to exploit an external opportunity or neutralize
an external threat?

The Question of Rarity

• if a resource is not rare, then perfect competition
dynamics are likely to be observed (i.e., no
competitive advantage, no above normal profits)
• a resource must be rare enough that perfect
competition has not set in
 Applying the VRIO Framework

Valuable and Rare

If a firm’s resources are: The firm can expect:

Not Valuable Competitive Disadvantage

Valuable, but Not Rare Competitive Parity

Competitive Advantage
Valuable and Rare
(at least temporarily)
Applying the VRIO Framework

The Question of Imitability

• the temporary competitive advantage of valuable

and rare resources can be sustained only if
competitors face a cost disadvantage in imitating
the resource
» intangible resources are usually more
costly to imitate than tangible resources
(Harley-Davidson’s styles may be easily
imitated, but its reputation cannot)
 Applying the VRIO Framework

Value, Rarity, & Imitability

If a firm’s resources are: The firm can expect:

Valuable, Rare, but Temporary

not Costly to Imitate Competitive Advantage

Sustained
Valuable, Rare, and
Competitive Advantage
Costly to Imitate
(if Organized appropriately)
Applying the VRIO Framework

The Question of Organization

• a firm’s structure and control mechanisms
must be aligned so as to give people ability
and incentive to exploit the firm’s resources
• examples: formal and informal reporting structures,
management controls, compensation policies,
relationships, etc.
• these structure and control mechanisms complement
other firm resources—taken together, they can help a
firm achieve sustained competitive advantage
(3M Company)
 The VRIO Framework
Costly to Exploited by Competitive
Valuable? Rare? Imitate? Organization? Implications

No No Disadvantage

Yes No Parity

Temporary
Yes Yes No Advantage

Sustained
Yes Yes Yes Yes
Advantage
 The VRIO Framework
Costly to Exploited by Competitive Economic
Valuable? Rare? Imitate? Organization? Implications Implications

No No Disadvantage Below
Normal

Yes No Parity Normal

Temporary Above
Yes Yes No Advantage Normal

Sustained Above
Yes Yes Yes Yes Normal
Advantage
Sources of Sustainable Competitive
Advantage
• Customer Loyalty – customers are
committed to shopping at a store.
Customer loyalty can be built through
building a brand image with an emotional
connection with customers, using
databases to develop and utilize a deeper
understanding of customers
• Location – must be convenient
Sources of Sustainable Competitive
Advantage contd.
• Human Resource Management – committed,
knowledgeable employees
• Distribution and Information Systems – shared
systems with vendors
• Unique Merchandise – exclusive
• Vendor relations – coordination of procurement
efforts; ability to get scarce merchandise
• Customer Service – knowledgeable and helpful
salespeople
 The Retail Value Chain
• Pentagon Player (most of the retail outlets)
 Product
 Place
 Value
 People and
 Communications

• Triangle Player (Dell Computers)

 Systems
 Logistics
 Suppliers
 Creating customer value
• “Customer value is the customer’s
perceived preference for, and evaluation
of, those attributes, attribute experiences
and consequences that facilitate or block
the achievement of the customer’s goals
and purposes” (Woodruff 1997)
 Creating customer value through
the value chain

“an analysis of the value chain is the appropriate way to examine competitive
advantage” Michael Porter 1985
Sources of competitive advantage
in the value chain
Value chain for food discounter
 Strategy Alternatives

Stability Growth Divestment Combination

Intensification Diversification

Market New Market New Product Vertically Concentric Conglomerate

Penetration Development Development Integrated Diversification Diversification

Forward Backward
 Grand Strategy
1. Growth - Can be promoted internally by
investing in expansion or externally by
acquiring additional business divisions.

2. Stability - Remain same size or grow

steadily and in a controlled fashion.

3. Divestment - Forced decline by either

shrinking current business units or
selling off or liquidating entire businesses.
 Global Strategy
• Globalization: product design and
advertising strategies are standardized
around the world
• Multidomestic: adapt product and
promotion for each country
• Transnational: combine global
coordination with flexibility to meet
specific needs in various countries.
 Growth Strategies for Retailers
• Market Penetration
• Market Expansion
• Market Development
• Diversification
 Market Penetration
• Involves directing investments toward existing
customers using the present retailing format
• Examples are attracting customers in the
retailer’s target market who don’t shop at its
outlets, inducing the customers to visit the store
more often. Approaches include attracting more
customers by opening more stores, keeping
existing stores open for longer hours
 Market Penetration
• Attract customers from target market – Big Bazaar’s
Sabse Sasta Din every Wednesday (being the middle of
week footfalls are the lowest)
• Get current customer to visit store more often or buy on
each visit
Eg: Pantaloons showrooms offer discount coupons
(upto 40%) when customer purchases merchandise
above a certain amount. This can be redeemed only on
the next visit and purchase within a period of 45 days.
• Cross Selling – sales associates in one department sell
complimentary merchandise from other departments
Eg: Manicurist sells services plus hand lotion or nail
polish
 Market Expansion
• Market expansion growth opportunity
involves using the existing retail format in
new market segments.
• Eg: Crosswords bookstores in Shopper’s
Stop.
• Chain Store retailer Bombay Store opens
its chain of stores in major cities airports
 Retail Format Development
• Involves offering customers a new retail format –
a format involving a different retail mix to the
same target market
• Example is Barnes and Noble, a specialty
bookstore retailer, sold books to its present
customers online.
• Spencer’s Hypermart opening up a new chain of
convenience stores called as Spencer’s Daily.
This competes with the local Kirana stores in
residential areas.
 Retail Format Development
• Develops a new retail format with a different
retail mix for the same target market
• Multi-channel retailing
• UK based TESCO:
– Tesco Express: small stores located close to where
customers live and work
– Tesco Metro: bring convenience to city center
location by specializing in ready-to-eat meals
– Tesco Superstores: traditional stores
– Tesco Extra: one-stop destination with the widest
range of food and non-food products
 Diversification
• Involves a new retail format directed
toward a market segment that is not
presently served
• Diversification opportunities are either
related or unrelated. Vertical integration is
another diversification opportunity. This
can either be backward (retailers can be
manufacturers) or forward (manufacturers
turns into retailers) integration.
Keys to Success in Global Retailing
• Globally sustainable competitive
advantage
– Low cost (Walmart)
– Fashion reputation (The Gap, Zara)
– Category dominance (Best Buy, Office Depot)
– Brand Image – Disney, Ikea, Starbucks
Keys to Success in Global Retailing
contd.
• Adaptability – recognizing cultural
differences and adapting to needs of local
market
• Global Culture – “think global”
• Financial Resources
 International Market Entry
Strategies
• Direct Investment – occurs when a retail
firm invests in and owns a division or
subsidiary that operates in a foreign
country
• Joint Venture – is formed when the retailer
pools its resources with a local retailer to
form a new company in which ownership,
control, and profits are shared
 International Market Entry
Strategies contd.
• Strategic Alliance – a collaborative relationship between
independent firms
• Franchising - is a contractual agreement between a fran
chisor and a franchisee that allows the franchisee to op
erate a retail outlet using name and format developed a
nd supported by the franchisor.

In a franchise contract, the franchisee pays a lump sum

plus a royalty on all sales for the right to operate a store
in a specific location and operate the outlet in accordanc
e with procedures prescribe by the franchisor beginning
with assistance in locating and building , developing pro
ducts and service sold , training , advertising and syste
m development that run by franchisor with costs shared
by franchisees.
 Franchise Store
• Franchise Store : Entrance Criteria
– Initial Fee or Franchise Fee :
– Royalty Fee :
– operate the outlet in accordance with procedures pres
cribe by the franchisor
• Advantage of Franchise Store
– Utility and Value of Master Brand or Franchisor
– All supported by Master Company or Franchisor
– Monetary and Source of fund supported
– Training and development human resource efficiency
 Franchise Store
• Franchise Store : Value , Brand and I
maging
– Intangible Asset ; Low of sunk cost
– Value and Creditability in Quality of Product and Serv
ice
– Get information through consumers all the time
• Franchise Store : Consideration
– consider the franchisee very carefully
– Control the quality of product and service strictly
– Be careful about franchisee’s liquidity and capital ass
et to hold the firm in long term.
 The Strategic Retail Planning
Process
1. Define the business mission
2. Conduct a situation audit (market, competitive,
environmental, and internal factors)
3. Identify strategic opportunities
4. Evaluate strategic alternatives
5. Establish specific objectives and allocate
resources
6. Develop a retail mix to implement strategy
7. Evaluate performance and make adjustments
 Steps involved in strategy
development
• Establish Mission
• Analyze situation
• Identify options
• Set objectives
• Obtain and allocate resources
• Develop & Implement Plan
• Monitor Progress and Control
 The Mission or the Purpose of
 
the Organisation
A mission statement is a statement of the long term
purpose of the organization.

Mission statements need to provide a clear sense of

direction for the organization and often reflect the
values of the organization or the corporate culture.
 “Our Corporate Vision”

“Sears, Roebuck & Co., a family of diversified

businesses, is the leader in providing and distributing
quality products to consumers. We will engage in those
commercial opportunities that leverage the distinctive
capabilities of our existing businesses.

We are committed to our most valued asset, our

reputation for integrity.

We dedicate ourselves to the principle that serving the

customer is of prime importance. We strive to provide
our shareholders with a foundation for consistent and
profitable investment growth.”
 Diversification @ Sears
• Sears began to diversify in the 1930s, adding
Allstate Insurance Company in 1931 and placing
Allstate representatives in its stores in 1934.
• Over the decades it established major national
brands, such as Kenmore, Craftsman, Diehard,
Silverstone, and Tough skins.
• The company became a conglomerate during
the mid-20th century, adding Dean Witter and
Coldwell Banker real estate in 1981, starting
Prodigy as a joint venture with IBM in 1984, and
introducing the Discover credit card in 1985.
• In March 2009, Sears purchased the social
search engine, Delver.
 Divestiture @ Sears
• In the 1990s the company began divesting itself of many non-retail
entities, which were creating a burden on the company's bottom
line.
• In 1993, Sears stopped production of its general merchandise
catalog because of sinking sales and profits. However, Sears
Holdings does continue to produce specialty catalogs and
reintroduced a smaller version of the Holiday Wish Book in 2007.
• In 2003, Sears sold its retail credit card operation to Citibank. The
remaining card operations were sold to JPMorgan Chase & Co. in
August 2005.
• In 2003, Sears opened a new concept store branded Sears Grand.
Sears Grand stores carry everything that a regular Sears carries,
plus health and beauty, toys, baby care, cleaning supplies, home
decor, pet food, cards and party supplies, books, magazines,
electronics, music, movies, and an edited assortment of groceries.
Sears Grand stores are about 175,000 to 225,000 square feet
(16,300 to 19,500 m²). The first Sears Grand store (and still the
largest at 225,000 square ft) opened at Jordan Landing in West
Jordan, Utah in 2003.
 The Situation Analysis
• PEST analysis, SWOT analysis, BCG
Matrix, Porter’s Five Forces

• Helps the retailer determine his position,

strengths and weaknesses, the
opportunities which can be tapped and the
weaknesses to be worked upon.
• It is the core element of any strategy
I
Identify Options
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•Retail Format Development

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 Set Objectives
•Sales Volume
•Market Share
•Retail Expansion
•Profitability
•Liquidity
•Returns on Investment
•Good objectives are measurable, are specific to time and
indicate the priorities of the organization
 Obtain & Allocate Resources
• Human Resources
• Financial Resources
 Develop the Strategic Plan
• Target Market
• Determine the Retail Mix
• Positioning Strategy
 Implement Strategy, Evaluate
and Control
• The key to success of any strategy lies in
its implementation.
• The focus must be single minded
• Periodic Evaluation
 Retail Branding
• A retail brand is an extension of branding that is
associated with the product range
• The retail brand encompasses the product and
the processes associated with a company that a
consumer chooses to shop.
• Many retailers have extended their core product
ranges under the umbrella of the retail brand to
increase the variety of product categories on
offer
• Shop-in-shop vs. Exclusive Showrooms
• MBO vs. EBO