CHAPTER 5 RETAIL INSTITUTIONS BY STOREBASED STRATEGY MIX

Chapter Objectives • • To describe the wheel of retailing, scrambled merchandising, and the retail life cycle and to show 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 © 2013 Pearson Education 5 -2

Retailer Strategy Mix • A strategy mix is the firm’s particular combination of: • • © 2013 Pearson Education store location operating procedures goods/services offered pricing tactics store atmosphere customer services promotional methods 5 -3

Earning Destination Retailer Status • • • Examples of destination stores include Trader Joe’s, IKEA, Micro Center, Fortunoff Outdoor Store, J&R Music World, B&H Photo Video Some combination of price-oriented and cost efficient, innovative or exclusive merchandise, and superior customer service Wide or deep merchandise strategy © 2013 Pearson Education 5 -4

Figure 5 -1: The Wheel of Retailing © 2013 Pearson Education 5 -5

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 5 -6 select services such as delivery, installation etc. Retail Mgt. 12 e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall © 2013 Pearson Education 5 -6

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 © 2013 Pearson Education 5 -7

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 © 2013 Pearson Education 5 -8

Figure 5 -2: Retail Strategy Alternatives © 2013 Pearson Education 5 -9

Figure 5 -3: Scrambled Merchandising by a Shoe Store © 2013 Pearson Education 5

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 © 2013 Pearson Education 5 -11

Retail Life Cycle • Retail institutions pass through identifiable life stages • • ©

Figure 5 -4: The Retail Life Cycle © 2013 Pearson Education 5 -13

How Retail Institutions Are Evolving • • © 2013 Pearson Education Mergers, diversification, and

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 Saks) Downsizing: unprofitable stores are closed or divisions are sold off (e. g. , A&P) © 2013 Pearson Education 5 -15

Figure 5 -5: Shopping Cart Sign © 2013 Pearson Education 5 -16

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 © 2013 Pearson Education General Merchandise • • Specialty store Traditional department Full-line discount store Variety store Off-price chain Factory outlet Membership club Flea market 5 -17

Convenience Store Strategy Mix Location Neighborhood Merchandise Medium width and low depth of assortment; average quality © 2013 Pearson Education Prices Average to Above average Atmosphere & Services Average Promotion Moderate 5 -18

Conventional Supermarket Strategy Mix Location Neighborhood Merchandise Extensive width and depth of assortment; average quality; manufacturer, private, & generic brands © 2013 Pearson Education Prices Competitive Atmosphere & Services Average Promotion Heavy use of newspapers, flyers, and coupons. 5 -19

Food-Based Superstore Strategy Mix Location Community shopping center or isolated site Merchandise Full assortment plus health and beauty aids and general merchandise © 2013 Pearson Education Prices Competitive Atmosphere & Services Average Promotion Heavy use of newspapers, flyers 5 -20

Combination Store Strategy Mix Location Community shopping Center or isolated site Merchandise Full assortment plus health and beauty aids and general merchandise © 2013 Pearson Education Prices Competitive Atmosphere & Services Average Promotion Heavy use of newspapers, flyers 5 -21

Box Store Strategy Mix Location Neighborhood Merchandise Low width and depth of assortment; few perishables; few national brands © 2013 Pearson Education Prices Very low Atmosphere & Services Low Promotion Little to none 5 -22

Warehouse Store Strategy Mix Location Secondary site, often in industrial area Merchandise Moderate width and low depth of assortment; emphasis on manufacturer brands bought at discount © 2013 Pearson Education Prices Very low Atmosphere & Services Low Promotion Little to none 5 -23

Specialty Store Strategy Mix Location Business district or shopping center Merchandise Very narrow width and extensive depth of assortment; average to good quality © 2013 Pearson Education Prices Competitive to Above average Atmosphere & Services Average to excellent Promotion Heavy use of displays Extensive sales force 5 -24

Figure 5 -8: Harrods © 2013 Pearson Education 5 -25

Traditional Department Store Strategy Mix Location Business district, shopping center or isolated store Merchandise Extensive width and depth of assortment; average to good quality © 2013 Pearson Education Prices Average to Above average Atmosphere & Services Good to excellent Promotion Heavy ad and catalog use; direct mail; personal selling 5 -26

Full Line Discount Store Strategy Mix Location Business district, shopping center or isolated store Merchandise Extensive width and depth of assortment; average to good quality © 2013 Pearson Education Prices Competitive Atmosphere & Services Slightly below average to average Promotion Heavy on newspapers; price-oriented; selling 5 -27

Variety Store Strategy Mix Location Business district, shopping center or isolated store Merchandise Good width and some depth of assortment; below-average to average quality © 2013 Pearson Education Prices Average Atmosphere & Services Below average Promotion Use of Newspapers 5 -28

Off-Price Chain Strategy Mix Location Business district, shopping center or isolated store Merchandise Moderate width and poor depth of assortment; average to good quality; low continuity © 2013 Pearson Education Prices Low Atmosphere & Services Below average Promotion Use of newspapers; brands not advertised; limited selling 5 -29

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 © 2013 Pearson Education 5 -30

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 © 2013 Pearson Education 5 -31

Factory Outlet Strategy Mix Location Out of the way site or discount mall Merchandise Moderate width and poor depth of assortment; low continuity © 2013 Pearson Education Prices Very low Atmosphere & Services Very low Promotion Little 5 -32

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). © 2013 Pearson Education 5 -33

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 © 2013 Pearson Education 5 -34

Membership Club Strategy Mix Location Isolated store or secondary site Merchandise Moderate width and poor depth of assortment; low continuity © 2013 Pearson Education Prices Very low Atmosphere & Services Very low Promotion Little, some direct mail 5 -35

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 © 2013 Pearson Education 5 -36

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. ” © 2013 Pearson Education 5 -37

Flea Market Strategy Mix Location Isolated store or secondary site Merchandise Extensive width and poor depth of assortment; low continuity; variable quality © 2013 Pearson Education Prices Very low Atmosphere & Services Very low Promotion Limited 5 -38

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