What’s Leading Edge With Today’s Leading Mass Volume Retailers? 8912 East Pinnacle Peak Road • Scottsdale, AZ 85255 Phone (480) 513-0547 • Fax (480) 513-0548 • E-Mail: firstname.lastname@example.org • email@example.com www.hoytnet.com March 8, 2005 Dallas, TX American Logistics Association Exchange Roundtable
Based on most recent research, the top 3 retailers shoppers rank as literally “indispensable” to their daily lives are Wal-Mart, Target and Costco: Meyers Research: “Retailers Consumers Could Not Live Without” (Aug, 2004) Source: Meyers Research, Aug, 2004 Base: Among those who shop the store 2% Kmart 2% Rite Aid 3% Walgreens 3% Dollar General 3% 7-Eleven 5% CVS 7% Sam's Club 8% Safeway 9% Albertson's 9% Kroger 11% BJ's 13% Target 17% Costco 31% Wal-Mart
Not coincidentally, Wal-Mart, Target and Costco are also the same retailers that consumers find the “most fun to shop”: Specific Retailers Consumers Find Most Fun To Shop Source: Meyers Research, Aug, 2004 Base: Among those who shop the store 1% Rite Aid 1% Safeway 1% Family Dollar 2% Kroger 2% CVS 3% Walgreens 3% Kmart 4% Albertson’s 6% Dollar General 11% BJ’s 20% SAM’s Club 28% Wal-Mart 30% Costco 30% Target
While Wal-Mart and Target are very different retailers, both share the same objectives as all other retailers– specifically:
Grow profitable sales by aligning and focusing all marketing, merchandising, buying and logistics functions on one or more of the following objectives:
Increase customer count (new customers) X
Increase trip frequencies (current customers) Yes
Increase transaction size (current customers) Yes
Increase productivity (Human and Financial) Yes
Reduce costs (COG’s and Operations) Yes
As you will see, the paths that Wal-Mart and Target have chosen to achieve these objectives represent today’s industry Best Practices.
The 800 lb. Gorilla In Every Retailer’s Living Room!
$284B – Largest company in the world – greater than the GDPs of Austria, Colombia, Czechoslovakia, Denmark, Greece, Norway, Portugal, Sweden, Switzerland, Ukraine and Vietnam
$20K in profit per minute !
13% WW CAGR – projected to do $1 trillion by 2014
$233B U..S. sales – CAGR of 9.9% to 2007
3,711 U.S. stores:
1,706 Super Centers
549 SAM’s Clubs
86 Neighborhood Markets
500+ new stores/remodels planned for 2005
Objective is to become the largest retailer in every market in which it operates (now #1 in only two countries out of 10)
So what are the key growth drivers that enable Wal-Mart to sustain the momentum of this juggernaut?
Let’s look at these from the standpoint of what’s relevant to Exchanges in terms of:
Marketing and Merchandising
The key elements of the Wal-Mart marketing mix – elegant and sophisticated – way beyond just “Always Low Prices”:
1. EDLP made possible by EDLC – Global buying and relentless pressure on COGs and operating costs
2. Use of consumables (food and non-edible CPG items) to drive traffic and transaction size
3. “OPP/good/better/best” merchandising ladder (private labels –> national brands)
Localization – Demographic assortments
5. Ancillary businesses – hearing aids, optics, stores within stores, etc.
6. Consumer-centric versus supplier-centric business model – all allowances are driven into price and not used to subsidize operating profits
The key elements of the Wal-Mart marketing mix (cont’d)
7. Shop-ability – wide aisles, mucho signage, well lit, easy to navigate
8. Speed to market – new items and promotions – 24/7 + 48 hour turnaround
9. Community involvement – parking lot extravaganzas, fishing contests, high school marching bands, etc.
10. Retail-tainment – in-store TV sets, trendy promotions (Shrek 2 and Britney Spears)
11. EDLP reinforcement – roll backs, action alley, special buys and multiple clearance items
12. Clicks and bricks synergy – what you can’t get in-store, you can get online
13. Store managers have broad discretion – can tailor assortments, authorize local displays and recommend new distribution of local items
Wal-Mart strategy to drive trips/provide one-stop shopping convenience – sell need (read “food”) items! Source: Retail Forward, Food Industry Outlook, February, 2004; ACNielsen, 2002 and 2003 2001 $63B 2002 $82B 2003 $95B 2004 $112B 2007 $162B 2010 $195B 35% Bigger than Kroger, Albertsons, Safeway and Ahold combined Bigger than Kroger & Albertsons Combined Surpasses Kroger as the nation’s #1 food retailer +17.0%/Year Compounded Vs. 4.0% For Supermarkets! Wal-Mart’s March To The Top of the U.S. Food Chain: 2001 - 2010 (Food & Drug Sales Only)
The Wal-Mart Merchandising Ladder OPP = Opening Price Point in the category (typically, Private Labels) GOOD BETTER BEST = Typically National Brands Source: MVI 10/28/2004
Because the buyer’s open-to-buy is based on inventory management and supply chain movement:
Wal-Mart Buyer Open-To-Buy
In The DC In Transit In Store On Order In Route – PLUS – + New Item Promotions Replenishment Seasonal What the buyer is able to order here Depends on how much $ he/she has tied-up in these “buckets” = why suppliers are so eager to work with Wal-Mart in helping to generate maximum sales off the lowest possible inventory base.
Low trip frequencies vs. Wal-Mart, Costco and even Dollar Stores!
Supercenters behind the curve
Too “Department Store-y” for a discounter:
Clean, uncluttered store policy sometimes perceived as sterile and boring
Too much emphasis on “want” vs. “need” merchandise – not enough everyday consumables to drive trips, create excitement or get shoppers started on the merchandise ladder
Highly centralized operations – Store Manager’s role is compliance and execution – no local discretionary authority
= 71% of Trips and 80% of Spending
Target Heavy Shopper Trip Frequencies – Just Not Enough! Source: IRI Panel Data 52 weeks ended Dec 31, 2003
Being perceived as more “Department Store-y” than “one-stop discount/convenience” these days is not exactly on trend: The U.S. Department Store Death Spiral: 1990 - 2010 Department Store Share of Non-Auto Retail Sales Source: Retail Forward, 2003
Despite these seemingly core negatives, Target has consistently out-paced Wal-Mart in both sales and comps ever since it jettisoned Mervyn’s and Marshall Fields in 2003 Target vs. Wal-Mart sales and comparable store growth – 2004 Source: Company 10Qs and monthly financial reports—MVI, Dec 09, 2004
So what is Target doing to achieve such exceptional results?
Not just words but the basis for all buying and merchandising decisions
The framework for Target’s Merchandising Ladder
A short, simple slogan that shoppers can remember and relate-to
Non-price differentiation – Through captive brands, designer exclusives, partnerships with other retailers, trendy P.L. merchandise, celebrity endorsements and “Buzz Marketing”
Emotional Connection with its customers – “My Target”
So what is Target doing to achieve such exceptional results, cont’d?
Heavy advertising – Over $1B in 2004 – to heighten awareness, sell promotions and build equity for the Target name
Quick response segmented merchandising – To capitalize on the latest generational and lifestyle shifts – expanded pharmacies (seniors), Hispanic advertising and Merchandising, “One Spot” (dollar sections), always on-trend merchandise (soft goods, apparel and housewares) and seasonal promotions
Rapidly adding everyday “need” consumables to drive trips and increase traffic – significantly expanded food sections in all stores. Recently added extensive wine section.
Target Positioning: “Expect More, Pay Less” PAY LESS EXPECT MORE We’re on top of trends so you will find the latest and greatest at Target. Bright, clean stores and fast checkouts make shopping at Target easy and fun. Really low prices are the number one reason to shop at Target. Great quality at a low price makes Target merchandise a great value. STYLE SERVICE PRICE QUALITY
Increase share of wallet
Platform for differentiation
Drive trips/build traffic
Create low price impression
Target’s “Expect More/Pay Less” Positioning has enabled Target to place itself squarely between commodity discounters and traditional department stores and avoid competing with either on their terms:
Target’s Positioning vs. Discount and Department Stores
Low Margins (23%)
High Margins (50%)
Drive Value Focus Drive Trend Focus
This positioning has become a major asset:
Enables Target to attract a wealthier shopper than traditional discount stores.
Improves sales per store, transaction size and gross margins (Target’s are highest in the channel at 32.8%).
Product assortments that cannot be purchased anywhere else – designer exclusives and captive brands, etc.
Strong, centralized control to ensure uniformity and thematic consistency throughout all store presentations and activities
A conscious policy of transferring as many costs as possible to the supplier community while, at the same time, offering suppliers a strong upside through Target’s aggressive advertising, merchandising and product exclusivity policies
Awareness of and willingness to react quickly to current issues – for example, Target’s current campaign to significantly increase its consumables representation to increase traffic and trip frequencies
While Target and Wal-Mart have each chosen to walk different paths on route to their success, there are certain factors common to both of these retailers that make them leading edge vs. most others in the retail community.
Ten factors, as follows:
1. Differentiation – Through constant juggling of the following elements:
Successful Private Label Programs
National Brand Supplier Customization
2. Use of Consumables – To build traffic and increase trip frequencies.
3. Ancillary Departments – To increase convenience and share of wallet.
4. Fluid Merchandising (rapid ins and outs) – To create excitement, build trip frequency and reinforce differentiation objectives
Ten factors that separate the most successful from the rest, cont’d
5. “OPP/Good/Better/Best” Merchandise Ladders – To trade shoppers up in almost every category.
6. Speed to Market – Now more important than “Bigness”
7. Relentless Pressure on Costs and Productivity – Both in general and store-specific
8. Willingness to Experiment – New formats, ancillary businesses, stores within stores, partnerships, adjacencies, retail-tainment, etc.
9. Global Sourcing – Now direct from the lowest cost producer – no middle men.
10. Technological Innovation – RFID, etc. to reduce costs/increase speed
It’s not just price; it’s a combination of factors, carefully blended and balanced to satisfy a particular consumer need or aspiration. Each retailer has to search within its own strengths to find the right formula. There are no easy answers.
Appendix Some particulars that may be of interest . . .
Target and Kmart U.S. Sales vs. Wal-Mart – Relatively Small Source: MVI 10/28/2004 Wal-Mart vs. Target and Kmart Sales & Growth Projections: 1999 - 2007E $19.4B $59.5B $309.4B $382.1B $100 $200 $300 $400 1999 2000 2001 2002 2003 2004E 2005E 2006E 2007E Wal-Mart Corporation Wal-Mart US Target Corporation Kmart
By mid 2004, Wal-Mart U.S. had achieved 86% household penetration – almost 25 points more than its next largest competitor – which translates to over 130MM shoppers per month Wal-Mart vs. Leading Competitor Household Penetration, Mid 2004 Source: IRI Panel Data (all shoppers - Total US)
Not content with this, Wal-Mart plans an additional 500 new store openings plus remodels in 2005, driven primarily by new Supercenters: Wal-Mart Domestic Expansion Plans For 2005 – Total U.S. Supercenters Discount Stores SAM’s Clubs Neighborhood Markets Total New Stores Remodels/Relocations Grand Totals +240 - 250 +40 - 45 +30 - 40 +25 - 30 335 - 365 160 500+ Source: Wall Street Journal, 10/5/2005; Supermarket News, 10/11/2004 + 10/18/2004
Wal-Mart’s store expansion strategy is carefully calculated to capture new consumers at all levels of the income spectrum and to provide shoppers with easy accessibility:
Wal-Mart Format Expansion Strategy: Capturing Consumers at All Income Levels
Target the same consumer for different trips
Target new consumers
Format Consumer by HH income A B C D E 75K+ 60-75K 45-60K 25-45K < 25K Discount Supercenter N. Mkt SAM’S walmart.com Source: MVI 10/28/2004