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Retail Competition and Strategy PowerPoint PPT Presentation


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Retailing MKTG 6211 Retail Competition and Strategy Professor Edward Fox Cox School of Business/SMU Retail Competition Overview Types of Retailers and Retail Formats Strategic Profit Model The Wheel of Retailing Competitive Advantage Competitive Positioning Low Price Convenience

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Retailing

MKTG 6211

Retail Competition and Strategy

Professor Edward Fox

Cox School of Business/SMU


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Retail Competition Overview

  • Types of Retailers and Retail Formats

  • Strategic Profit Model

  • The Wheel of Retailing

  • Competitive Advantage

  • Competitive Positioning

    • Low Price

    • Convenience

    • Variety / Assortment

    • Service


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Types of Retailers

  • Type of retailer depends on:

    • Merchandise

      • Variety (Breadth)

      • Assortment (Depth)

      • Services, rather than merchandise

    • Service

    • Pricing

  • Infinite Variations

  • “Survival of the Fittest” - Formats must best satisfy needs of significant segment(s)

Adapted from Levy and Weitz


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Types of Retailers SIC System for Classifying Retailers


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Types of Retailers Sales by SIC Category

Source: U.S. Department of Commerce, 1998 Census of Retail Trade


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Types of Retailers – Merchandise

  • Variety (Breadth of Merchandise)

    Examples of broad-line retailers:

    • Macy’s, Bloomingdales

    • JCPenney, Sears

    • Costco, Sam’s Club

    • Carrefour

    • Family Dollar, Dollar General

  • Assortment (Depth of Merchandise)

    Examples of “Category Killers,” or specialty stores:

    • PetSmart, Petco

    • Edwin Watts, Golfsmith

    • Bed, Bath and Beyond, Linens ‘N Things, Container Store

    • Sports Authority, Dick’s Sporting Goods, Academy Sports


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Types of Retailers – Price

  • Discount Stores – lower margins, higher volume

    • Wal-Mart, Target, Meijer

  • Off-Price Retailers – lower cost merchandise

    • TJMaxx, Marshall’s, Ross

  • Factory Outlets – manufacturer outlet for out-of season

    • Burlington Coat Factory, Off-Fifth, Nordstrom Rack

    • Entire outlet malls

  • Warehouse Clubs

    • Costco, Sam’s Club

  • Hypermarket

    • Carrefour

Adapted from Levy and Weitz


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Types of Retailers – Service

  • Self-Service – Customer is on his/her own

    • Food and drug stores (e.g., Kroger, Walgreen’s), some specialty stores (e.g., Office Depot, Barnes & Noble)

  • Limited Service – Available salesperson

    • Most department stores (e.g., Macy’s, JCPenney, Neiman Marcus), some specialty stores (e.g., JCPenney, Gap, Kohl’s)

  • Full Service – Salesperson assists the customer

    • Some specialty stores (e.g., Zales, Nine West), restaurants

Self Service

Full Service

Retailer Costs Increase with Service!


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Retailers of Services

Type of ServiceService Retail Firms

Airlines American, Delta, British Airways, Singapore Airways

Automobile maint/repair Jiffy Lube, Midas, AAMCO

Automobile rental Hertz, Avis, Budget, Alamo

Banks Citibank, NCNB, Bank of America

Child care centers Kindercare, Gymboree

Credit cards American Express, VISA, Mastercard

Education University of Florida, Babson College

Entertainment parks Disney, Universal Studios, Six Flags

Express package delivery Federal Express, UPS, US Postal Service

Financial services Merrill Lynch, Dean Witter

Fitness Jazzercise, Bally’s, Gold’s Gym

Health Care Humana, HCA

Home maintenance Chemlawn, MiniMaid, Roto-Rooter

Adapted from Levy and Weitz


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Retailers of Services

Type of Service Service Retail Firms

Hotels and motels Hyatt, Sheraton, Marriott, Days Inn

Income tax preparation H & R Block

Insurance Allstate, State Farm

Internet access/Elec info. American On-Line, CompuServe

Long-distance telephone AT&T, MCI, Sprint

Movie theaters AMC, Loews/Sony, Universal

Real estate Century 21, Coldwell Banker

Restaurants TGI Friday’s, Wendy’s, Pizza Hut

Truck rentals U-Haul, Ryder

Weight loss Weight Watchers, Jenny Craig

Video rental Blockbuster

Vision centers Lenscrafter, Pearle

Adapted from Levy and Weitz


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Focus on General Merchandise Retailers

Adapted from Levy and Weitz


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Focus on General Merchandise Retailers – Department Stores

  • Competition from:

    • Discount Stores on Price

    • Category Killers on Assortment and Service

  • Possible Competitive Responses

    • Lower Costs By Reducing Services

    • More Sales (by Expansion, Acquisition)

    • Focus on Strong Categories (e.g., Apparel, Home, Jewelry)

    • Improve Services

    • Develop Private Labels, Exclusive Brands

A Decline in Mall Shopping Threatens Mall-Based Department Stores!

Adapted from Levy and Weitz


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Focus on General Merchandise Retailers – Discount Stores

Big Three Two – Wal-mart, Target, Kmart

  • Competition from Category Killers – KB Toys, Best Buy, PetSmart

  • Possible Competitive Responses:

    • Continue to Reduce Costs

    • Add Additional Variety (e.g., Banking, Pharmacy, Health Care)

    • More Focus on Apparel Because It Offers Higher Margins

… Except Wal-Mart, Which is Focusing on Food!

Adapted from Levy and Weitz


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Strategic Profit Model Overview

Net profitxAsset turnover = Return on assets

Net profitxNet sales (crossed out) = Net profit

Net sales (crossed out)Total assets Total assets

Source: Levy and Weitz


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Strategic Profit Model Detail

Net Sales

-

Gross margin

Cost of goods sold

-

Net profit

Variable expenses

Net profit margin

+

Total expenses

Net Sales

Fixed expenses

Return on assets

x

Inventory

Net sales

+

Asset turnover

Total current assets

Accounts receivable

+

Total assets

+

Other current assets

Fixed assets

Source: Levy and Weitz


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Strategic Profit ModelRETURN ON ASSETS

Return on assets = Net profit margins X Asset turnover

= Net profit X Net sales

Net sales Total assets

= Net profit

Total assets

Wal-Mart:$ 4,430=8.86%

$49,996

Tiffany:$ 90=8.51%

$1,057

Source: Levy and Weitz


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Revenue / Margin % PortfolioGENERAL MERCH. DISCOUNT STORES

Sales Dollar Volume

High

Low

High

Giftware

Stationary/ Greeting Cards

Jewelry & Watches

Handbags/ Accessories

Shoes

Women's

Wear

Kitchen/ House-wares

Hardware/ Building Supplies

Paint & Wallpaper

Hosiery

Men'sWear

Girls’ Wear

Boys’ Wear

Gross Margin

Percentage

Pet Supplies

Luggage

Toys

Sporting Goods

Books

Automotive

Magazines

Infants’ Ware

RTA Furniture

Photo Goods

CDs & Tapes

Consumer Electronics

Lawn & Garden

Candy

Traffic Appliances

Tobacco

Low


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Revenue / Margin % PortfolioGROCERY STORES

Sales Dollar Volume

High

Low

High

Ice cubes

Foils, bags, wraps

Spices

Milk

Pasta

Yogurt

Teas

Ice cream

Bread

Cat litter

Gross Margin

Percentage

Rices

Crackers

Cookies

Cooking oils

Spaghetti sauce

Soup

Facial tissue

Tuna

Peanut butter

Bleaches

Laundry detergent

Toilet tissue

RTE cereal

Low


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Revenue / Margin % PortfolioCONVENIENCE STORES

Sales Dollar Volume

High

Low

High

Hot Bev

Frozen Bev

Fountain Drinks

Ice

Other Fast Food

Sandwiches-Fresh

Sand-wiches-Frozen

Candy & Gum

Cooked Food

Salty Snacks

GM

Juices

Auto

Gross Margin

Percentage

Bottled Water

Cook-ies

Ice Cream

Pckg’d Deli

HBC

Frozen Food

Deli Svcs

Soft Drinks

Groceries

Wine/ Liquor

Produce

Breads & Cakes

Eggs

Tobacco

Beer

Milk

Publications

Low


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“Wheel of Retailing”

Retailers Change Over Time in a Predictable Way

Source: Levy and Weitz


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Retailing and Competitive Advantage

  • Competitive Advantage - An advantage enjoyed by a given retailer relative to others in the market

  • General sources of competitive advantage:

    • Overall cost leadership - can offer best value (i.e., lowest prices) or earn higher margins

      • Wal-Mart

    • Differentiation - unique product or service characteristics

      • Abercrombie and Fitch, Papa Johns, Sewell Automotive

    • Narrow customer focus (niching) - address wants and needs of particular customer segment(s)

      • Container Store, Hallmark

Adapted from Michael Porter


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Competitive Positioning

Depends on:

  • Retailer’s competitive advantage(s)

  • Needs and wants of target customers

  • Current perceptions of the retailer


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Competitive Positioning – Examples

G

H

C

A

D

E

B

F

Wide Variety; Deep Assortment

Value, or Low Price

Away from

Competitors

Service; Ease of Shopping

Convenience

Against a

Competitor

User Image


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Retail Competition ExampleMARKET FOR WOMENS APPAREL

Source: Levy and Weitz


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Trends in Retail Competition

  • Increasing Diversity of Retail Formats

    • Category killers

    • Supercenters

    • Internet Retail

  • Blurring of Products/Services Across Formats

    • Pharmacy

    • Food

    • Soft goods / apparel

  • Small Store Formats Make a Comeback

    • Dollar store format

    • Hard discounters in Europe

    • Wal-Mart’s Neighborhood Market format

  • Increasing Concentration within Formats

    • Centralization of Decision-Making

    • Information and Communication Systems

  • Retailers Go International

    • Wal-Mart expands outside the US

    • Retailers spread through Europe and Asia

  • Multi-Channel Retailing


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Trends in Retail – Blurring Formats

Various Formats Now Offer:

  • Pharmacy

  • Financial Services, Banking

  • Video Rental

  • Prepared Foods

  • Health Care?

The Service Aisle, or Perimeter Departments, Are Growing!


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Retail CompetitionSHOPPING ACROSS RETAIL FORMATS

  • Shoppers are much more likely to shop at multiple formats in a given week than to shop at grocery stores alone

Data Source: IRI panel of 589 panelists from Oct 1995 - Oct 1997


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Retail CompetitionSHOPPING ACROSS RETAIL FORMATS

  • Category by category, which packaged goods purchases are made in which formats?

Packaged Goods Purchases in Retail Formats for Selected Categories

Data Source: IRI panel of 589 panelists from Oct 1995 - Oct 1997


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Trends in Retail – Consolidation

  • Discount Stores

    • Wal-Mart, Target, Kmart

  • Drug stores

    • Walgreens, CVS, Eckerd

  • Office Supply Category Killers

    • Office Depot, Staples, Office Max

Consolidation increases efficiency and lowers costs

Source: Levy and Weitz


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