Retailcompetition
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Retailcompetition Presentation Transcript

  • 1. Retail Competition and Strategy Retail Competition and Strategy Retailing MKTG 3346 Professor Edward Fox Cox School of Business/SMU
  • 2. 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. 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. Types of Retailers SIC System for Classifying Retailers
  • 5. Types of Retailers Sales by SIC Category Source: U.S. Department of Commerce, 1998 Census of Retail Trade
  • 6. Types of Retailers – Merchandise Variety (Breadth of Merchandise) Examples of broad-line retailers: 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 Bed, Bath and Beyond, Container Store
  • 7. Types of Retailers – Price Discount Stores – lower margins, higher volume Wal-Mart, Target, Kmart Off-Price Retailers – lower cost merchandise TJMaxx, Marshall’s Factory Outlets – manufacturer outlet for out-of season Burlington Coat Factory, Off-Fifth, Nordstrom Rack Entire outlet malls Warehouse Clubs Costco, Sam’s Club Carrefour Adapted from Levy and Weitz
  • 8. Types of Retailers – Service Self-Service – Customer is on his/her own Food and drug stores (e.g., Kroger, Walgreen’s) Limited Service – Available salesperson Most department stores, some specialty stores (e.g., JCPenney, Gap, Kohl’s) Full Service – Salesperson 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!Retailer Costs Increase with Service!
  • 9. 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 Service Financial services Merrill Lynch, Dean Witter Fitness Jazzercise, Bally’s, Gold’s Gym Health Care Humana, HCA Home maintenance Chemlawn, MiniMaid, Roto-Rooter Retailers of Services Adapted from Levy and Weitz
  • 10. 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 Retailers of Services Adapted from Levy and Weitz
  • 11. Focus on General Merchandise Retailers Adapted from Levy and Weitz
  • 12. 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 ThreatensA Decline in Mall Shopping Threatens Mall-Based Department Stores!Mall-Based Department Stores! Adapted from Levy and Weitz
  • 13. Focus on General Merchandise Retailers – Discount Stores Big Three – Wal-mart, Target, Kmart Competition from Category Killers – Toys ‘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!Except Wal-Mart, Which is Focusing on Food! Adapted from Levy and Weitz
  • 14. Retail Competition Example MARKET FOR WOMENS APPAREL Source: Levy and Weitz
  • 15. Net profit x Asset turnover = Return on assets Net profit x Net sales (crossed out) = Net profit Net sales (crossed out) Total assets Total assets Strategic Profit Model Overview Source: Levy and Weitz
  • 16. Net Sales Cost of goods sold Variable expenses Fixed expenses Gross margin Total expenses Net profit Net Sales Net profit margin Asset turnover Return on assets ÷ - - + Inventory Accounts receivable Other current assets Total current assets Fixed assets Net sales Total assets + + + ÷ x Strategic Profit Model Detail Source: Levy and Weitz
  • 17. 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 Strategic Profit Model RETURN ON ASSETS Source: Levy and Weitz
  • 18. “Wheel of Retailing” Retailers Change Over Time in a Predictable WayRetailers Change Over Time in a Predictable Way Source: Levy and Weitz
  • 19. Retailing and Competitive Advantage Competitive AdvantageCompetitive Advantage - An advantage enjoyed by a given retailer relative to others in the market General sources of competitive advantage: Overall cost leadershipOverall cost leadership - can offer best value (i.e., lowest prices) or earn higher margins Wal-Mart DifferentiationDifferentiation - unique product or service characteristics Abercrombie and Fitch, Papa Johns, Sewell Automotive Narrow customer focus (nichingNarrow customer focus (niching) - address wants and needs of particular customer segment(s) Container Store, Hallmark Adapted from Michael Porter
  • 20. Competitive Positioning Depends on: Retailer’s competitive advantage(s) Needs and wants of target customers Current perceptions of the retailer
  • 21. Competitive Positioning – Examples ConvenienceConvenience Away from Competitors Away from Competitors Value, or Low Price Value, or Low Price Service; Ease of Shopping Service; Ease of Shopping User ImageUser Image B B A A E E D D CCH H G G F FAgainst a Competitor Against a Competitor Wide Variety; Deep Assortment Wide Variety; Deep Assortment
  • 22. 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-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
  • 23. Trends in Retail – Blurring Formats Various Formats Now Offer: Pharmacy Financial Services, Banking Video Rental Prepared Foods The Service Aisle, or Perimeter Departments, AreThe Service Aisle, or Perimeter Departments, Are Growing!Growing!
  • 24. Shoppers are much more likely to shop at multiple formats in a given week than to shop at grocery stores alone 0% 20% 40% Grocery Only Grocery + Mass Grocery + Drug Grocery + Club Retail Competition SHOPPING ACROSS RETAIL FORMATS Data Source: IRI panel of 589 panelists from Oct 1995 - Oct 1997
  • 25. Retail Competition SHOPPING ACROSS RETAIL FORMATS Category by category, which packaged goods purchases are made in which formats? Sales Ranking Description % Spending in Grocery % Spending in Mass % Spending in Drug % Spending in 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. 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 costsConsolidation increases efficiency and lowers costs Source: Levy and Weitz
  • 27. Revenue / Margin % Portfolio CONVENIENCE STORES High Low High Low Gross Margin Percentage Sales Dollar Volume Frozen Bev Eggs Produce Bottled Water Sand- wiches- Frozen Frozen Food Auto Pckg’d Deli Other Fast Food Wine/ Liquor Cook- ies Ice Cooked Food Deli Svcs Sandwiches -Fresh Ice CreamHBC Hot Bev Juices Fountain Drinks GM Breads & Cakes Publications Groceries Salty Snacks Candy & Gum Milk Soft Drinks BeerTobacco
  • 28. Revenue / Margin % Portfolio GENERAL MERCH. DISCOUNT STORES High Low High Low Gross Margin Percentage Sales Dollar Volume Paint & Wallpaper Handbags/ Accessories Tobacco Pet Supplies Books Luggage Magazines Giftware Hosiery RTA Furniture CDs & Tapes Candy Jewelry & Watches Photo Goods Girls’ Wear Shoes Boys’ Wear Stationary/ Greeting Cards Infants’ Ware Consumer Electronics Sporting Goods Lawn & Garden Traffic Appliances Hardware/ Building Supplies Women's Wear Men's Wear Toys Kitchen/ House- wares Automotive
  • 29. Revenue / Margin % Portfolio GROCERY STORES High Low High Low Gross Margin 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