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Introduction to Retail Market Strategy
What Is Retail Strategy
Strategic Planning Process
Market Penetration growth opportunity- involves realizing growth by directing efforts toward existing customers using the retailer’s present retailing format.
Market Penetration approaches include opening more stores in the target market and keeping existing stores open for longer hours
Other approaches involve displaying merchandise to increase impulse purchases and training salespeople to cross-sell.
Cross-Selling means that sales associates in one department attempt to sell complementary merchandise from other departments to their customers.
Market Expansion growth opportunity- involves using the existing retail format in new market segments.
Abercrombie and Finch were aimed at college students and not high school kids. So Abercrombie and Finch decided to open a new lower-priced chain called Hollister CO. for the high school kids. The retail format is essentially the same.
Retail Format Development
Retail Format development growth opportunity- is an opportunity in which a retailer develops a new retail format- a format with a different retail mix- for the same target market.
Ex. Best Buy offers the Geek Squad to be of assistance to people that need 24-7 computer support and service. Best Buy offers both a tangible product and also a service.
Diversification growth opportunity- is one in which the retailer introduces a new retail format directed toward a market segment that’s not currently served by the retailer. Diversification opportunities are either related or unrelated.
Related vs. Unrelated Diversification
the retailer’s present target market of retail format shares something in common with the new opportunity.
- lacks any commonality between the present business and the new business.
Ex. Foot Locker at one time owned Burger King Franchises and also Afterthoughts accessory stores.
Foot Locker then realized their greatest profit potential was in the foot wear business they sold off their Burger King and Afterthoughts stores and focused on their core capabilities.
They now have Foot Locker, Lady Foot Locker, Kids Foot Locker, Champ Sports, Foot action, and Foot Locker stores in Europe. Plus and internet and catalog business.
- is diversification by retailers into wholesaling or manufacturing.
Ex. Zales Corporation designs and sells their own jewelry.
Zales Jewelers has a broad selection of classic and contemporary styles. Zales stores sell more diamond jewelry than any other jeweler in North America. In addition to diamond fashion jewelry, Zales offers gold, cultured pearls and an extensive wedding jewelry selection. In fact, it is the extensive bridal collection that represents the largest part of the chain’s business.
Strategic Opportunities and Competitive Advantage
Retailers have the greatest competitive advantage when they engage in opportunities that are similar to their present retail strategy.
Retailers would be most successful engaging in market penetration opportunities that don’t involve entering new, unfamiliar markets or operating new, unfamiliar retail formats.
Global Growth Opportunities
Of the 50 largest retailer’s, 37 of them operate in more than one country.
International expansion can be risky due to:
Supply chain considerations
Who is Successful and Who Isn’t?
Most successful global retailers are specialty store retailers with strong brand images and/or unique merchandise such as: Starbucks, McDonalds’, The Gap, IKEA;
Category specialists such as Home Depot, Toys R’ Us offer brand assortments and low prices, which appeal to consumers in different cultures.
Discount and foot retailers with low prices such as Wal-mart, Carrefour, Royal Ahold, and Metro AG.
Category specialists and supercenter retailers are suited to succeed globally because of their operating efficiencies.
American culture is spreading throughout the world with the young people. There is room for expansion internationally for retailer’s… period.
Keys to Global Success
Four characteristics of retailers that have successfully tapped into the international market:
A globally sustainable competitive advantage
Globally Sustainable Competitive Advantage
Retailers need to have a Core Advantage such as: low-cost, efficient operations, strong private brands, fashion reputation, and category dominance.
Wal-Mart and Carrefour are successful in international markets due to their low prices.
The Gap and Zara are successful due to their success with fashionable merchandise.
US Retailers must adapt to other countries ways of living such as: color preferences, preferred cut of apparel, and sizes of clothes.
Selling season also vary in countries
Ex. US sells back to school clothes in August, while Japan occurs in April.
Store designs and layouts may vary also due to country culture.
Ex. US Wal-Mart is a huge one story building; while in Europe it may be 5 stories tall and have very limited space due to their lifestyle.
Cultural values and Government regulations can also affect store operations
Holidays, hours of operation, and regulations governing part-time employees and terminations.
The assortment of items to be sold is also very different also.
Food sales in Japan, China and the UK are much more important than the US.
Starbucks annihilated this theory with types of frappuccinos for the UK, Japan, and Taiwan.
Carrefour’s is the best example of Global Culture. They have a true system that works among the managers in all the countries that obtain a store. With 30 years of international experience in 21 countries, both developed and developing.
Beat that Wal-Mart!
Global expansion requires a long-term commitment and considerable upfront planning. Retailers find it very difficult to generate short-term profits when they make the transition to global retailing.
Four approaches retailers can take when entering a nondomestic market:
- involves a retail firm investing in and owning a division or subsidiary that operates in a foreign country.
This entry strategy requires the highest level of investment and exposes the retailer to significant risks, but it has the highest potential for earnings.
Direct Investments = Total Control of Operations
- is formed when the entering retailer pools its resources with a local retailer to form a new company in which ownership, control, and profits are shared.
Ex. Royal Ahold (the Netherlands) and Velox Holdings (Argentina)
A joint venture reduces the entrant’s risk.
- is a collaborative relationship between independent firms.
Ex. A retailer might enter and international market through direct investment but is DHL or UPS to facilitate its local logistical and warehousing activities.
offers the lowest risk and requires the least investment.
However, the entrant has little control over retail operations in the foreign country, potential profits reduced, and the risk of assisting in the creation of a local domestic competitor is increased.
Ex. The U.K. - based Marks & Spencer has franchised stores in 29 countries.
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