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

Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall5-1

CHAPTER 5: RETAIL INSTITUTIONS BY STORE-BASED STRATEGY MIX

1

©2013 Pearson Education Inc publishing as Prentice Hall 5-2

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


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

©2013 Pearson Education Publishing as Prentice Hall 5-5

Figure 5-1: The Wheel of Retailing

©2013 Pearson Education Inc publishing as Prentice Hall 5-6Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall 5-6

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.


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


Location

Neighborhood

Prices

Average to

Above average

Atmosphere & ServicesAverage

Merchandise

Medium width

and low depth

of assortment;

average quality

Promotion

Moderate

Convenience Store Strategy Mix


Location

Neighborhood

Prices

Competitive

Atmosphere & Services

AverageMerchandise

Extensive width and depth of assortment;

average quality; manufacturer, private, &

generic brands

Promotion

Heavy use of newspapers, flyers, and

coupons.

Conventional Supermarket Strategy Mix


Location

Community shopping

center or isolated site

Prices

Competitive


Average

Merchandise

Full assortment plus

health and beauty aids

and general merchandise

Promotion

Heavy use of

newspapers, flyers

Food-Based Superstore Strategy Mix


Location

Community shopping

Center or isolated site

Prices

Competitive


Average

Merchandise

Full assortment plus

health and beauty aids

and general merchandise

Promotion

Heavy use of

newspapers, flyers

Combination Store Strategy Mix


Location

Neighborhood

Prices

Very low


LowMerchandise

Low width and depth of

assortment; few

perishables; few national

brands

Promotion

Little to none

Box Store Strategy Mix


Location

Secondary site, often in

industrial area

Prices

Very low


LowMerchandise

Moderate width and

low depth of assortment; emphasis on

manufacturer brands

bought at discount

Promotion

Little to none

Warehouse Store Strategy Mix


Location

Business district or

shopping center

Prices

Competitive to

Above average


Average to excellent

Merchandise

Very narrow width and

extensive depth of

assortment; average to

good quality

Promotion

Heavy use of displays

Extensive sales force

Specialty Store Strategy Mix


Figure 5-8: Harrods


Location

Business district, shopping

center or isolated store

Prices

Average to

Above average


Good to excellent

Merchandise

Extensive width and

depth of assortment; average to good quality

Promotion

Heavy ad and catalog

use; direct mail;

personal selling

Traditional Department Store Strategy Mix


Location

Business district, shopping

center or isolated store

PricesCompetitive


Slightly below

average to average

Merchandise

Extensive width and

depth of assortment; average to good quality

Promotion

Heavy on newspapers;

price-oriented; selling

Full Line Discount Store Strategy Mix


Location

Business district, shopping center or

isolated store

PricesAverage


Below average

Merchandise

Good width and some depth of assortment;

below-average to average quality

Promotion

Use of Newspapers

Variety Store Strategy Mix


Location

Business district, shopping center or

isolated store

PricesLow


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 Chain Strategy Mix


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


Location

Out of the way site

or discount mall

PricesVery low


Very low

Merchandise

Moderate width and

poor depth of assortment;

low continuity

Promotion

Little

Factory Outlet Strategy Mix


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


LocationIsolated store or secondary site

PricesVery low

Atmosphere & ServicesVery low

MerchandiseModerate width and

poor depth of assortment;

low continuity

PromotionLittle, some direct mail

Membership Club Strategy Mix


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.”


LocationIsolated store or secondary site

PricesVery low

Atmosphere & ServicesVery low

MerchandiseExtensive width and

poor depth of assortment; low

continuity; variable quality

PromotionLimited

Flea Market Strategy Mix

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