Sears Apparel Brands

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Sears Apparel Brands

  1. 1. Evaluating the Competition in Retailing Chapter 4 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
  2. 2. Learning Objectives <ul><li>Explain the various models of retail competition </li></ul><ul><li>Distinguish between various types of retail competition </li></ul><ul><li>Describe the four theories used to explain the evolution of retail competition </li></ul><ul><li>Describe the changes that could affect retail competition </li></ul>
  3. 3. Models of Retail Competition <ul><li>The Competitive Marketplace </li></ul><ul><li>Market Structure </li></ul><ul><li>The Demand Side of Retailing </li></ul><ul><li>The Supply Side of Retailing </li></ul><ul><li>The Profit-Maximizing Price </li></ul><ul><li>Nonprice Decisions </li></ul><ul><li>Competitive Actions </li></ul>LO 1
  4. 4. The Competitive Marketplace <ul><li>While retailers typically compete for customers on a local level, catalog and electronic retailers compete at national and international levels. </li></ul>LO 1
  5. 5. Market Structure <ul><li>Pure Competition </li></ul><ul><li>Pure Monopoly </li></ul><ul><li>Monopolistic Competition </li></ul><ul><li>Oligopolistic Competition </li></ul>LO 1
  6. 6. Market Structure <ul><li>Pure Competition </li></ul><ul><li>Occurs when a market has homogenous products and many buyers and sellers, all having perfect knowledge of the market, and ease of entry for both buyers and sellers. </li></ul>LO 1
  7. 7. Market Structure <ul><li>Pure Monopoly </li></ul><ul><li>Occurs when there is only one seller for a product or service. </li></ul>LO 1
  8. 8. Market Structure <ul><li>Monopolistic Competition </li></ul><ul><li>Occurs when the products offered are different, yet viewed as substitutable for each other and the sellers recognize that they compete with sellers of these different products. </li></ul><ul><li> </li></ul>LO 1
  9. 9. Market Structure <ul><li>Oligopolistic Competition </li></ul><ul><li>Occurs when relatively few sellers, or many small firms who follow the lead of a few larger firms, offer essentially homogeneous products and any action by one seller is expected to be noticed and reacted to by the other sellers. </li></ul><ul><li> </li></ul>LO 1
  10. 10. Market Structure <ul><li>Outshopping </li></ul><ul><li>Occurs when individuals in one community travel usually to a larger community to shop. </li></ul><ul><li> </li></ul>LO 1
  11. 11. The Demand Side of Retailing LO 1: Exhibit 4.1 Price Quantity Demanded Demand as a Function of Price
  12. 12. The Supply Side of Retailing LO 1 Dollars Unit Sales Quantity or Sales Volume Fixed Costs
  13. 13. The Supply Side of Retailing LO 1 Dollars Unit Sales Quantity or Sales Volume Variable Costs
  14. 14. The Supply Side of Retailing LO 1 Dollars Unit Sales Quantity or Sales Volume Total Costs
  15. 15. The Profit-Maximizing Price <ul><li>A profit-maximizing price seeks to get as much profit as possible from the sale of each unit. </li></ul>LO 1
  16. 16. Nonprice Decisions <ul><li>Nonprice competition strategies </li></ul><ul><li>Position itself as different from the competition by altering its merchandise mix to offer higher quality goods, great personal service, etc. </li></ul><ul><li>Offering private label merchandise. </li></ul><ul><li>Provide free services or products, such as free gas to out of town customers. </li></ul><ul><li>Strive to always have basic merchandise in stock. </li></ul>LO 1
  17. 17. Nonprice Decisions <ul><li>Store Positioning </li></ul><ul><li>Is when a retailer identifies a well-defined market segment using demographic or lifestyle variables and appeals to this segment with a clearly differentiated approach. </li></ul>LO 1
  18. 18. Nonprice Decisions: Private Labels of <ul><li>Kmart: Joe Boxer, Martha Stewart Everyday, Disney </li></ul><ul><li>Sears apparel brands: Apostrophe, TKS, Land’s End </li></ul><ul><li>JCPenny: St. John’s Bay, Arizona, Stafford </li></ul><ul><li>Wal-Mart: Equate, Simply Basic, Great Value </li></ul><ul><li>Target: Cherokee, Honors, Furio </li></ul><ul><li>Saks Fifth Avenue: 5/48, Real Clothes, SFA Collections </li></ul><ul><li>Federated Department Stores: I.N.C., Alfani, Green Dog </li></ul><ul><li>Nordstrom: BP, Halogen, Studio 121 </li></ul><ul><li>Lord and Taylor: Katie Hill, Context, Identity </li></ul>LO 1: Exhibit 4.2 Major Retailers
  19. 19. Competitive Actions <ul><li>Competitive activity can be examined by the number of retail establishments of a given type per thousand households. </li></ul>LO 1
  20. 20. Competitive Actions <ul><li>Overstored </li></ul><ul><li>Is a condition in a community where the number of stores in relation to households is so large that to engage in retailing is usually unprofitable or marginally profitable. </li></ul><ul><li>Understored </li></ul><ul><li>Is a condition in a community where the number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor. </li></ul>LO 1
  21. 21. Types of Competition <ul><li>Intratype and Intertype Competition </li></ul><ul><li>Divertive Competition </li></ul>LO 2
  22. 22. Types of Competition <ul><li>Intratype Competition </li></ul><ul><li>Occurs when two or more retailers of the same type as defined by NAICS codes in the Census of Retail Trade, compete directly with each other for the same households. </li></ul><ul><li>Intertype Competition </li></ul><ul><li>Occurs when two or more retailers of a different type, as defined by NAICS codes in the Census of Retail Trade, compete directly by attempting to sell the same merchandise lines to the same households. </li></ul>LO 2
  23. 23. Intratype and Intertype Competition <ul><li>Intratype competition for books. </li></ul>LO 2
  24. 24. Intratype and Intertype Competition <ul><li>Intertype competition for video rentals. </li></ul>LO 2
  25. 25. Intratype and Intertype Competition LO 2 Intratype Competition Intertype Competition Albertsons Supermarket Food Giant Supermarket McDonald’s Supermarkets offering Home Meal Replacements (HMR) compete with fast-food restaurants
  26. 26. Types of Competition <ul><li>Divertive Competition </li></ul><ul><li>Occurs when retailers intercept or divert customers from competing retailers. </li></ul>LO 2
  27. 27. Types of Competition <ul><li>Break-even Point </li></ul><ul><li>Is where total revenues equal total expenses and the retailer is making neither a profit nor a loss. </li></ul>LO 2
  28. 28. Evolution of Retail Competition <ul><li>The Wheel of Retailing </li></ul><ul><li>The Retail Accordion </li></ul><ul><li>Retail Life Cycle </li></ul>LO 3
  29. 29. Evolution of Retail Competition <ul><li>The Wheel of Retailing Theory </li></ul><ul><li>Describes how new types of retailers enter the market as low-status, low-margin, low-price operators; however, as they meet with success, these new retailers gradually acquire more sophisticated and elaborate facilities, and thus become vulnerable to new types of low-margin retail competitors who progress through the same patter. </li></ul>LO 3
  30. 30. The Wheel of Retailing Theory LO 3: Exhibit 4.3
  31. 31. Wheel of Retailing <ul><li>Some would argue that McDonald’s has become a victim of the wheel of retailing. When McDonald’s started out, it served a select menu. Over the years, the McDonald’s product offering has expanded to the inclusion of playgrounds, thus opening the way for new, low-cost fast-food providers, such as Checkers. </li></ul>LO 3
  32. 32. Evolution of Retail Competition <ul><li>Retail Accordion </li></ul><ul><li>Describes how retail institutions evolve from outlets that offer wide assortments to specialized stores and continue repeatedly through the pattern. </li></ul>LO 3
  33. 33. The Retail Accordion LO 3 Wide Assortment Wide Assortment Narrow Assortment Time
  34. 34. Evolution of Retail Competition <ul><li>Retail Life Cycle </li></ul><ul><li>Describes four distinct stages that a retail institution progresses through: </li></ul><ul><li>Introduction </li></ul><ul><li>Growth </li></ul><ul><li>Maturity </li></ul><ul><li>Decline </li></ul>LO 3
  35. 35. Evolution of Retail Competition: <ul><li>Introduction </li></ul><ul><li>Begins with an aggressive, bold entrepreneur who is willing and able to develop a different approach to retailing of certain products. During this stage profits are low, despite increasing sales levels. </li></ul>LO 3 The Retail Life Cycle
  36. 36. Evolution of Retail Competition: <ul><li>Growth </li></ul><ul><li>Sales and profits explode, validating the entrepreneur’s good idea. New retailers enter the market and begin to copy the retailers idea. Late in this stage both market share and profitability approach their maximum levels. </li></ul>LO 3 The Retail Life Cycle
  37. 37. Evolution of Retail Competition: <ul><li>Maturity </li></ul><ul><li>Market share stabilizes and profits decline because: </li></ul><ul><li>managers use to managing simple small </li></ul><ul><li> retail outlets must now manage large complex firms, </li></ul><ul><li>industry has overexpanded, and </li></ul><ul><li>competitive assaults by new retail </li></ul><ul><li> formats. </li></ul>LO 3 The Retail Life Cycle
  38. 38. Evolution of Retail Competition: <ul><li>Decline </li></ul><ul><li>The once promising idea is no longer needed in the marketplace. As a result, market share and profits fall. </li></ul>LO 3 The Retail Life Cycle
  39. 39. Retail Institutions in the Four Stages of LO 3: Exhibit 4.4 Introduction E-tailing (1990’s) Recyclers (2000’s) Growth Food Courts (1980’s) Airport-based retailers (1980’s) Supercenters (2000’s) Maturity Warehouse clubs(1970’s) Department stores (1860’s) Supermarkets (1930’s) Convenience stores (1960’s) Category killers (1970’s) Fast food (2000’s’) Decline Variety Stores (1890’s) Factory outlet malls (1970’s) Department stores (2000’s) The Retail Life Cycle
  40. 40. Resource-Advantage Theory <ul><li>Resource-advantage theory </li></ul><ul><li>Is based on the idea that all firms seek superior performance in an ever-changing environment. </li></ul><ul><li>Illustrates two important lessons for retailers: </li></ul><ul><li>Superior performance at any point in time is a result of achieving a competitive advantage in the market place as a result of some tangible or intangible entity (“resource”). </li></ul><ul><li>All retailers cannot achieve superior results at the same time. </li></ul>LO 3
  41. 41. Future Changes in Retail Competition <ul><li>Nonstore Retailing </li></ul><ul><li>New Retail Formats </li></ul><ul><li>Heightened Global Competition </li></ul><ul><li>Integration of Technology </li></ul><ul><li>Increased use of Private Labels </li></ul>LO 4
  42. 42. Future Changes in Retail Competition <ul><li>Nonstore Retailing </li></ul><ul><li>Direct selling </li></ul><ul><li>Catalog sales </li></ul><ul><li>E-tailing </li></ul>LO 4
  43. 43. Future Changes in Retail Competition <ul><li>New Retail Formats </li></ul><ul><li>Supercenters </li></ul><ul><li>Recycled Merchandise Retailers </li></ul><ul><li>Liquidators </li></ul>LO 4
  44. 44. Future Changes in Retail Competition: <ul><li>Off-price Retailers </li></ul><ul><li>Sell products at a discount but do not carry certain brands on a continuous basis. They carry those brands they can buy from manufacturers at closeout or deep one-time discount prices. </li></ul>LO 4 New Retail Formats
  45. 45. Future Changes in Retail Competition: <ul><li>Supercenters </li></ul><ul><li>Combine a discount store and grocery store to carry 80,000 to 100,000 products in order to offer one-stop shopping. </li></ul>LO 4 New Retail Formats
  46. 46. Future Changes in Retail Competition: <ul><li>Number of Supercenters by Retailer </li></ul><ul><li>1998 1999 2000 </li></ul><ul><li>Wal-Mart 564 721 894 </li></ul><ul><li>Meijer 117 127 144 </li></ul><ul><li>Kroger 105 126 135 </li></ul><ul><li>Kmart 102 105 115 </li></ul><ul><li>Target 14 16 31 </li></ul>LO 4 Supercenters
  47. 47. Future Changes in Retail Competition: <ul><li>Recycled Merchandise Retailers </li></ul><ul><li>Are establishments that sell used and reconditioned products. </li></ul>LO 4 New Retail Formats
  48. 48. Future Changes in Retail Competition: <ul><li>Liquidators </li></ul><ul><li>Liquidates leftover merchandise when an established retailer shuts down or downsizes. </li></ul>LO 4 New Retail Formats
  49. 49. Leading U.S. Retailers by Sales LO 4 1900 ’20 ’30 ’40 ’50 ’60 ’70 ’80 ’90 2000 A&P Sears K-Mart Wal-Mart $200B $30B $10B $5B $800M $500M $200M
  50. 50. The Relationship of Price Versus Nonprice Actions and Demand Curve LO 4 Price Quantity Price D 2 D 1 Pricing Actions move the consumer up and down the current demand curve. Non-price Actions seek to shift the demand curve to right and make it more inelastic. Quantity
  51. 51. Future Changes in Retail Competition <ul><li>Heightened Global Competition </li></ul><ul><li>Increasing Rate of Change </li></ul><ul><li>Greater Diversity </li></ul><ul><li>Creation of New Retail Formats </li></ul>LO 4
  52. 52. Future Changes in Retail Competition <ul><li>Integration of Technology </li></ul><ul><li>Supply Chain Management </li></ul><ul><li>Customer Management </li></ul><ul><li>Customer Satisfaction </li></ul>LO 4
  53. 53. Future Changes in Retail Competition <ul><li>Increasing Use of Private Labels </li></ul><ul><li>Helps in protecting retailer niche </li></ul><ul><li>Sets retailer apart from competition </li></ul>LO 4
  54. 54. Arizona Jeans Co. <ul><li>JCPenney has built significant store loyalty through the introduction and development of the private label brand Arizona Jeans Co. </li></ul>LO 4
  55. 55. Question to Ponder <ul><li>Should retailers advertise the fact that they are the owners of the private label brand(s) they sell? </li></ul>
  56. 56. Future Changes in Retail Competition <ul><li>Private Label Branding Strategies </li></ul><ul><li>Developing a partnership with well-known celebrities, noted experts, and institutional authorities. </li></ul><ul><li>Developing a partnership with traditionally higher-end suppliers to bring an exclusive variation on their highly regarded brand name to the market. </li></ul><ul><li>Reintroducing products with strong name recognition that have fallen from the retail scene. </li></ul><ul><li>Branding an entire department or business; not just a product line. </li></ul>LO 4
  57. 57. Additional Slides
  58. 58. Market Structure LO 1 Retail Competition Pure Competition Oligopolistic Competition Pure Monopoly Monopolistic Competition
  59. 59. Future Changes in Retail Competition LO 4 Nonstore Retailing New Retail Formats Integration of Technology Heightened Global Competition Increased use of Private Labels
  60. 60. Future Changes in Retail Competition: LO 4 E-tailing Catalog Sales Direct Selling Nonstore Retailing
  61. 61. Future Changes in Retail Competition: LO 4 Liquidators Recycled Merchandise Retailers Supercenters New Retail Formats
  62. 62. Future Changes in Retail Competition: LO 4 Creation of New Retail Formats Greater Diversity Increased Rate of Change Heightened Global Competition
  63. 63. Future Changes in Retail Competition: LO 4 Customer Satisfaction Customer Management Supply Chain Management Integration of Technology
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