retailcompetition.ppt

7/27/2019 retailcompetition.ppt

1/29

Retail Competition and

Strategy

RetailingMKTG 3346

Professor Edward Fox

Cox School of Business/SMU


2/29

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


3/29

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


4/29

Types of RetailersSIC System for Classifying Retailers


5/29

Types of RetailersSales by SIC Category

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


6/29

Types of Retailers Merchandise

Variety (Breadth of Merchandise)Examples of broad-line retailers:

JCPenney, Sears

Costco, Sams Club

Carrefour

Family Dollar, Dollar General

Assortment (Depth of Merchandise)

Examples of Category Killers, or specialty stores:

PetSmart, Petco

Edwin Watts

Bed, Bath and Beyond, Container Store


7/29

Types of Retailers Price

Discount Storeslower margins, higher volume Wal-Mart, Target, Kmart

Off-Price Retailerslower cost merchandise

TJMaxx, Marshalls

Factory Outletsmanufacturer outlet for out-of season Burlington Coat Factory, Off-Fifth, Nordstrom Rack

Entire outlet malls

Warehouse Clubs

Costco, Sams Club Carrefour



8/29

Types of Retailers Service

Self-ServiceCustomer is on his/her own

Food and drug stores (e.g., Kroger, Walgreens)

Limited ServiceAvailable salesperson

Most department stores, some specialty stores (e.g., JCPenney,

Gap, Kohls)

Full ServiceSalesperson assists the customer

Some department stores and specialty stores (e.g., Nordstrom,

Nine West), restaurants, etc.

Self Service Full Service

Retailer Costs Increase with Service!


9/29

Type of Service Service 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 ServiceFinancial services Merrill Lynch, Dean Witter

Fitness Jazzercise, Ballys, Golds Gym

Health Care Humana, HCA

Home maintenance Chemlawn, MiniMaid, Roto-Rooter

Retailers of Services



10/29

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 Fridays, Wendys, Pizza Hut

Truck rentals U-Haul, Ryder

Weight loss Weight Watchers, Jenny Craig

Video rental Blockbuster

Vision centers Lenscrafter, Pearle

Retailers of Services



11/29

Focus on General Merchandise Retailers


G


12/29

Focus on General Merchandise RetailersDepartment 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


13/29

Focus on General Merchandise RetailersDiscount Stores

Big Three Wal-mart, Target, Kmart

Competition from Category KillersToys R Us, Best

Buy, PetSmart

Possible Competitive Responses: Continue to Reduce Costs

More Focus on Apparel Because It Offers Higher Margins

Except Wal-Mart, Which is Focusing on Food!



14/29

Retail Competition ExampleMARKET FOR WOMENS APPAREL

Source: Levy and Weitz


15/29

Net profit x Asset turnover = Return on assets

Net profit x Net sales (crossed out) = Net profitNet sales (crossed out) Total assets Total assets

Strategic Profit Model Overview



16/29

Net Sales

Cost ofgoods sold

Variableexpenses

Fixedexpenses

Grossmargin

Totalexpenses

Net profit

Net Sales

Net profitmargin

Asset

turnover

Return onassets

-

-

+

Inventory

Accountsreceivable

Other currentassets

Total currentassets

Fixed assets

Net sales

Total assets

+

+ +

x

Strategic Profit Model Detail



17/29

Return on assets = Net profit margins X Asset

turnover

= Net profit X Net salesNet sales Total assets

= Net profitTotal assets

Wal-Mart: $ 4,430 = 8.86%

$49,996

Tiffany: $ 90 = 8.51%$1,057

Strategic Profit ModelRETURN ON ASSETS



18/29

Wheel of Retailing

Retailers Change Over Time in a Predictable WaySource: Levy and Weitz


19/29

Retailing and Competitive Advantage

Competitive Advantage - An advantage enjoyed by agiven retailerrelative to others in the market

General sources of competitive advantage:

Overall cost leadership - can offer best value (i.e., lowestprices) 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 andneeds of particular customer segment(s)

Container Store, Hallmark

Adapted from

Michael Porter


20/29

Competitive Positioning

Depends on:

Retailers competitive advantage(s)

Needs and wants of target customers

Current perceptions of the retailer


21/29

Competitive Positioning Examples

Convenience

Away fromCompetitors

Value, or LowPrice

Service; Easeof Shopping

User Image

B

A

E

D

CH

G

F

Against a

Competitor

Wide Variety;Deep Assortment


22/29

Trends in Retail Competition

Increasing Diversity of Retail Formats Category killers

Supercenters

Electronic Retailers

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-Marts 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


23/29

Trends in Retail Blurring Formats

Various Formats Now Offer:

Pharmacy

Financial Services, Banking

Video Rental

Prepared Foods

The Service Aisle, or Perimeter Departments, Are

Growing!


24/29

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

0%

20%

40%

Grocery Only Grocery + Mass Grocery + Drug Grocery + Club

Retail CompetitionSHOPPING ACROSS RETAIL FORMATS

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


25/29

Retail CompetitionSHOPPING ACROSS RETAIL FORMATS

Category by category, which packaged goodspurchases are made in which formats?

SalesRankin Description

% Spendingin Grocery

% Spendingin Mass

% Spendingin Drug

% Spendingin Club

1 REGULAR SOFT DRINKS 88.5% 7.7% 2.0% 1.8%2 READY TO EAT CEREAL 91.3% 4.7% 0.3% 3.8%

3 LOW CALORIE SOFT DRINKS 88.9% 8.2% 2.1% 0.7%

4 REFRIGERATED SKIM/LOW-FAT MILK 90.3% 1.5% 3.9% 4.3%

5 SHELF STABLE BREAD 95.3% 3.5% 0.4% 0.8%

8 CIGARETTES CARTON 31.0% 36.2% 10.4% 22.4%

11 TOILET TISSUE 52.4% 35.5% 3.0% 9.1%

12 DISPOSABLE DIAPER/LINER 35.8% 55.8% 5.9% 2.5%

14 INTERNAL ANALGESICS TABLET 36.9% 29.1% 27.4% 6.6%

20 DRY CELL BATTERY 25.2% 47.9% 20.1% 6.8%

25 PAPER TOWELS 46.4% 40.1% 2.0% 11.4%

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

Packaged Goods Purchases in Retail Formats for Selected Categories


26/29

Trends in Retail Consolidation

Discount Stores

Wal-Mart, Kmart, Target

Drug stores

Walgreens, CVS, Eckerd Office Supply Category Killers

Office Depot, Staples, Office Max

Consolidation increases efficiency and lowers costs


R / M i % P tf li


27/29

Revenue / Margin % PortfolioCONVENIENCE STORES

High Low

High

Low

GrossMargin

Percentage

Sales Dollar Volume

FrozenBev

Eggs

Produce

BottledWater

Sand-wiches-Frozen

FrozenFood

Auto

PckgdDeli

Other

FastFood

Wine/

Liquor

Cook-ies

Ice

CookedFood

Deli Svcs

Sandwiches-Fresh

IceCreamHBC

Hot Bev

Juices

FountainDrinks

GM

Breads &Cakes

Publications

Groceries

SaltySnacks

Candy &Gum

Milk

Soft Drinks

BeerTobacco

R / M i % P tf li


28/29

Revenue / Margin % PortfolioGENERAL MERCH. DISCOUNT STORES

High Low

High

Low

GrossMargin

Percentage

Sales Dollar Volume

Paint &Wallpaper

Handbags/Accessories

Tobacco

PetSupplies

Books

Luggage

Magazines

Giftware

Hosiery

RTAFurniture

CDs &Tapes

Candy

Jewelry &Watches

PhotoGoods

GirlsWear

Shoes

BoysWear

Stationary/Greeting

Cards

InfantsWare

ConsumerElectronics

SportingGoods

Lawn &Garden

TrafficAppliances

Hardware/BuildingSupplies

Women's

Wear Men'sWear

Toys

Kitchen/House-wares

Automotive

Re en e / Margin % Portfolio


29/29

Revenue / Margin % PortfolioGROCERY STORES

High Low

High

Low

GrossMargin

Percentage

Sales Dollar Volume

Spices

Ice cream

Milk

Bread

RTE cereal

Laundry detergent

Cookies

Soup

Foils, bags,wraps

PastaYogurt

Toilet tissue

Tuna

Spaghetti sauce

Crackers

Cat litter

Rices

Teas

Ice cubes

Facial tissue

Bleaches

Cooking oils

Peanut butter

retailcompetition.ppt

Documents