RETAIL STRATEGY AND PLANNING

1. RETAIL STRATEGY AND PLANNING STRATEGIC ANALYSIS • PEST Analysis • Analysis of Competitive Forces • SWOT Analysis • STRATEGIC DIRECTION • Defining a Strategic Vision • Routes to Competitive Advantage • Creating Customer Value • The Balanced Scorecard • STRATEGIES FOR GROWTH • Retail Growth Vectors • Diversification or Specialisation • Acquisitions and Mergers • Alliances and Concessions • CUSTOMER TARGETING • Target Marketing • Positioning Strategies

2. Retailing executives like to see themselves as ‘quick on their feet’ and take pride in being so (Rosenbloom, 1980) Most retail strategies are formed in someone else’s head office (McGoldrick an Andre, 1996) Perhaps a well thought out strategy would help? (Walters and Hanrahan, 2000)

3. But what is strategy? • .Strategy is a plan, a direction, a guide or course of action for the future. • .Strategy is a pattern of behaviour over time, such as innovating or following. • .Strategy is a position in the market, such as up-market. • .Strategy is perspective, a way of doing things, a business concept. • .Strategy is a ploy, a specific manoeuvre to outwit a competitor. (Mintzberg, 1994)

4. 1. Long term direction: in its early days, IKEA was defined as a Scandinavian furniture retailer; now it has shifted to a global scale. 2.Achieving some advantage: IKEA was successful because it offered different benefits, compared with other retailers. 3.Scope of an organisation’s activities: The boundaries of the business, in terms of products, mode of service, design functions, etc. 4. Search for strategic fit: matching the activities of an organisation to the environment in which it operates.

5. STRATEGIC AUDITS AND ANALYSIS PEST Analysis Competitive Forces SWOT Analysis

6. Example of Retailer’s PEST Analysis Political/Legal Economic · · Change of government GNP trends · · Tax policies Regional economies · · Employment law Disposable incomes · · Minimum wage Savings ratio · · Trading hours restrictions Interest rates · · Planning guidelines Exchange rates · · Monopoly legislation Fuel costs · · Terms of trade codes/laws Employment levels · · Bargain offer regulations National competition · · Environmental laws International competition Sociocultural Technological · · Environmental concerns Hi-tech products · · Consumerism Food processing/presentation · · Changing work patterns Internet/interactive TV · · Income distribution Electronic funds transfer · · Holiday/leisure time Electronic data interchange · · Exercise/sport participation Warehouse technology · · Food concerns Greener vehicles · · Levels of education Satellite tracking · · Aging population International teleconferencing · · Delays in starting family Security technologies

7. Forces Influencing Competition in a Sector Bargaining Power of Suppliers Bargaining Power of Retailers Brand strength Share of retail sector Product differentiation Several feasible suppliers Technical expertise Own branding Category leadership Low switching costs High switching costs Access to information Alternative channels Possible to source internationally available Rivalry Between Competitors Bargaining Power of Customers Industry concentration Spending power Growing/static market Choices available Over/under capacity Mobility Exit costs/ barriers Switching costs Core competencies Price sensitivity Product/ service differentiation Loyalty/ Inertia Threat of Entrants Threat of Substitutes Economies of scale of Product substitution existing competitors Product obsolescence Cost of wining share New product forms/ fashions Expected retaliation New retail formats Barriers to entry Direct marketing Government regulations E-commerce Customers switching costs

8. Example Components of a SWOT Analysis Components Examples of Issues STRENGTHS/WEAKNESSES (Internal) Stores Size profile, locations, design characteristics, development potential Buying Buying power, category experience, scope of buying expertise, outside agents or networks. Product range Width and depth of assortment, distinctive products, own-brand penetration. Management Skills, expertise, leadership, vision, organisation structure, cohesiveness of organisation. Marketing Advertising effectiveness, pricing policies, merchandising skills, service levels, marketing research. Personnel Numbers, age structure, flexibility, skill levels, training resources.

9. Defining a Strategic Mission A vision is the antecedent to a strategy. A strategy is dependent on a vision in order to give it form and direction. A vision is a description of a place, or a state where you wish to be. (Journal of Business Strategy, 1996)

10. Developing a Mission Statement • Where are we? • How did we get here? • Where could we be? • Where should we be? • How would we get there?

11. Defining the Business You are In • Horticulture - selling plants and related products • Providing a comprehensive gardening service • Making gardening easier • Filling people’s disposable time • Entertainment/leisure • Fulfilling people’s dreams

12. Sustainable Competitive Advantage The prolonged benefit of implementing some unique value-creating strategy not simultaneously being implemented by any current or potential competitors, along with the inability to duplicate the benefits of that strategy.

13. Porter’s “Generic Strategies” 1. Overall Cost Leadershipeg, Comet A game that must be won Technology, international scale, etc can change cost positions Cost emphasis may lead to marketing or assortment deficiencies 2. Differentiation eg, Harrods Differentiation factors may diminish in salience Price may be too high to retain loyalty Imitation tends to reduce differentiation 3. Focus eg, Tie Rack Niche needs may become mainstream Competitors can invade Growth/ economies of scale restricted

14. Cost Effective Differentiation Suppliers Strong buying Supply chain Co-operation Innovation Cost Control Branding Positioning Direct Competitors RETAILER Imitatory Substitutes Segmentation Targeting Relationships Customers/ Consumers Source: Warnaby and Woodruffe (1995)

15. Strategic Effectiveness and Operational Effectiveness ‘Under pressure to improve productivity, quality and speed, managers have embraced tools such as TQM, benchmarking, and reengineering. Dramatic operational improvements have resulted, but rarely have these gains translated into sustainable profitability. Gradually, the tools have taken the place of strategy. Porter (1996)

16. Stretching the Productivity Frontier High Non- price value delivered Low Harrods Fortnum and Mason Marks & Spencer Foods J.Sainsbury Tesco Safeway Generalized productivity frontier at previous point in time Asda/Wal-Mart Kwik Save Aldi Netto HighRelative cost position Low Adapted from: Porter (1996); Walters and Hanrahan (2000)

17. Concept of the Value Chain • ‘every firm is a collection of activities that are performed to design, produce, market, deliver • and support its product (or service)’. • ‘An analysis of the value chain, rather than value added, is the appropriate way to examine • competitive advantage’. • Porter (1985) But what is value? • ‘Customer value is a customer’s perceive 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)

18. Retail Value Chain Firm Infrastructure M a Human Resources r g Technology Development i n Procurement n n i Store Marketing & Supply Service g Locations Store Promotion Chain & Design Operations r a M Adapted from: Porter (1985); McGee (1987).

19. Customer Driven Value System Needs Consumers Demographic Save Money Socio Economic Be Exclusive Geographic Save Time Lifestyles Find Solutions Contexts Save Effort Occasions Have Fun VALUE NEEDED Resources Solutions Buying Product Range Human Resources Prices Skills/Creativity Product Quality Technology Service Levels Information Ambiance Property Locations PROVIDED VALUE Financial Customer Promotion Market Share Satisfaction Adverts/PR Profits Loyalty Electronic Media Share Price Word-of-Mouth Brand Image VALUE COMMUNICATED

20. The Balanced Scorecard Communicating, integrating and monitoring from four perspectives: Financial stakeholders Customers (Internal) business processes Innovation, learning and growth

21. A Retailer’s Balanced Scorecard Measures Critical success Measures Critical success factors and targets factors and targets Turnover up X% Ratings/market Volume growth Favourite retailer in n years share data Market share Ratings/returns Leadership in Best products > rival rate sector ROI up X% over Ratings/price Profitability Best value n years audits Share price up Value of business Good service Rating/complaints X% To succeed financially, how should we To achieve our vision, how should we appear to our shareholders? appear to our customers? FINANCIAL CUSTOMER STRATEGIC DIRECTION Vision and Mission Statement PROCESSES LEARNING To satisfy our shareholders and To achieve our vision, how will we customers, what business processes sustain our ability to change and must we excel at? improve? we excel at? Buying Relative prices/ Effectiveness of Training/staff effectiveness margins staff turnover rates Flexibility of Costs/out-of- Supply chain Adaptability staff/management stocks efficiency Time on new Accessibility/ Creativity and concept/design Store location spending power design development Speed of service/ E-tail and other Transaction Understanding of quotes pilot projects efficiency new channels Critical success Measures Critical success Measures factors and targets factors and targets Adapted from Kaplan and Norton (1992, 1993, 1996)

22. The Scorecard Planning Loop • 1. Translating the vision:clarifying the vision and gaining concensus within the organization. Strategy statements expressed and agreed as an intergrated set of • objectives and measures, describing the long-term drivers of success. • 2. Communicating and linking :communicating the strategy up and down the organization. Setting goals and linking rewards to performance. • 3. Business planning:setting targets, aligning strategic objectives, allocating resources and establishing milestones. • 4. Feedback and learning:widens the focus from financial targets to broader perspectives. Facilitates strategy review and learning: strategies can be modified to relect real-time learning.

23. Product-Market Matrix Customer base/ market segments Existing Related New Consolidation New market Market–led Existing Penetration expansion segments Productivity improvements Retailing product New ranges package Assortment Growth Manipulation Related New services New outlet types Diversification New (unrelated) New product categories Adapted from: Ansoft (1988), Knee and Walter (1985), McDowell Mudambi (1994).

24. Retail Growth Vectors Existing proposition New Products/ Services New Segments Maximum viable share Grow Different Unrelated market share segments products/ services Related Adjacent products segments /services Existing market segment(s), assortments, trading areas, formats and channels Modification of format National expansion International Different Linked channel expansion format Separate channel New formats Geographical Development New channels

25. Alternative specialization strategies: • 1. Broad category range – narrow target • market, for example, Harvey Nichols. • 2. Narrow category range – specific target market, for example, Tie Rack. • 3. Narrow category range – deep choice within categories, for example, Toys ‘R’ Us.

26. Superstore Diversification Pharmacy Health & Beauty Music Cookware Electricals Clothing (common thread of weekly/ regular purchases getting stretched) Boots Diversification Optician Dentistry Chiropody Health Advice ‘Alternative’ Treatments Fitness Centres (strong common thread of health and personal well-being)

27. Appropriateness of Supermarket Non-Foods Category Household Health Stationery Entertain- Clothing Goods & Beauty ment Perception % % % % % Inappropriate 1.0 2.6 8.7 24.0 25.0 Neutral 6.7 10.3 15.2 14.7 15.0 Appropriate 92.3 87.1 76.1 61.3 60.1 Adapted form: Hart and Davies (1996)

28. Why do companies divest of acquisitions? • 1. It is the individual business units that compete, not the diversified company. The strategy therefore fails unless each business unit is carefully nurtured. • 2. Corporate diversification adds costs and constraints to the business units, such as the need to comply with corporate planning, control or personnel systems/policies. • 3. Shareholders themselves can often diversify more cheaply, to their own pereferences. A company typically incurs a sizable acquistion premium.

29. Motives for Acquisitions & Mergers Diversification e.g., Kingfisher Group Defensive e.g., Carrefour and Promodes Market Share/ Economies of Scale e.g., Tesco - Wm Low Somerfield - Kwik Save Synergy/ Skills Transfer e.g., Habitat and Mothercare Alternative Channel Development e.g., Next - Grattan Internationalization e.g., Wal-Mart - Asda

30. Strategic Alliances Opportunistic Alliances Formalised Relationships • Side-by-side developments • e.g., Tesco and • Marks & Spencer • Partnerships on petrol forecourts • e.g., Tesco and Esso • Safeway and BP • Joint ventures • e.g., Homebase • International JVs

31. Pros and Cons of Using Concessions Possible Advantages Possible Problems Flexibility of short-term contracts Diversity of design formats in store Gain specialist expertise Less coherent image for store Learning from concessions Concession can damage reputation Offer specialization within diversity Merchandise positioning mismatch Provide attraction to the store Confusion in store layout Superior supply terms A substitute for real innovation Pressure upon concession to perform Diversion of sales to concession Reduction in staff and other costs Less control over prices, stock, etc. Reduced risk of unsold stock Staff less/ not loyal to store Guaranteed income to store Concession-store staff conflicts Productive use of excess space More admin for store manager Lower realized gross margins Higher profit/ sq. metre than own department

32. CUSTOMER TARGETING Target Marketing Positioning Strategies Loyalty Programmes Customer Relationship Management

33. POSITIONING • Positioning starts with a product, a piece of merchandise, a service, an instituion or even a person. • But positioning is not what you do a product. Positioning is what you do to the mind of the prospect. That is, you position the product in the mind of the prospect (Ries and Trout, 1982).

34. A Case of Repositioning Lewis Seperates:post-war austerity, formal designs and stores Chelsea Girl: ‘swinging 60s’ loud music up-to-date clothes, affordable gum-chewing assistants young women targeted River Island: young(ish) men and women more sophisticated

35. Competitors Next for Men Burton Menswear Marks & Spencer Main competitor, used for Higher priced main competitor benchmarking on prices and quality River Island Fashion-led; used by Higher priced and fashion- younger customers led Principles for Men Competitor on quality and Fashion-led for middle age style group Top Man Competitor at lower-end Fashion-led competitor for price ranges; used by the younger age groups younger customers Next for Men n/a Second main competitor Burton Menswear Not perceived as a n/a competitor by management at Next French Connection, Reiss, Strong competition in n/a Jigsaw fashion forward ranges Cruise and upmarket Local competition on n/a independents designer fashion Sportswear retailers Some basic competition at Strong local competition the lower end Discount fashion retailers n/a Strong local competition in casual and formal wear Source: Birtwistle and Freathy (1998) Note: management perceptions of competitors

36. + 50 % Up Market Up Market ¨ Older Younger + 40 % Waitrose ¨ J. Sainsbury + 30 % ¨ Marks & + 20 % Spencer ¨ Tesco + 10 % Relative turnover Safeway ¨ from 0 % ABC1 social ¨ ¨ Asda groups - 10 % Somerfield - 20 % ¨ ¨ Co-Op Morrison - 30 % ¨ Aldi ¨ Netto - 40 % ¨ Kwik Down Market Down Market Save - 50 % Older Younger - 30 % - 20 % - 10 % 0 % + 10 % + 20 % Relative turnover from 16 – 44s Derived from: Nielson (2000) Note: zero percent on each scale represents the national average penetration in those age/social bands.

37. Conventional Positioning Approach • 1 Low price – high service(low profit?) • 2 High price – high service(service-oriented) • 3 Low price – low service(price-oriented) • 4 High price – low service(poor value)

38. Value Innovation : Book Retailing