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Understand the strategies like cost containment, unbundled pricing, and retail life cycles to optimize your store-based retail entity. Learn about effective methods and alternatives to thrive in the retail industry.
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LOG 561 RETAIL MANAGEMENT RETAIL INSTITUTIONS BY STORE-BASED STRATEGY MIX
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
Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall 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
Retail Life Cycle Retail institutions pass through identifiable life stages introduction growth maturity decline
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- department store and Kmart-discount department store) Diversification: retailers become active in businesses outside their normal operations (e.g., Nordstrom Rack (American upscale fashion retailer, Off Sak, fashion outlet store) Downsizing: unprofitable stores are closed or divisions are sold off
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
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
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
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
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.” Membership Club Strategy (cont)
