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Store location refers to the use of a store or nonstore format, placement in a geographic area, and the kind of site (such as a shopping center).
Operating procedures include the personnel employed, management style, store hours, and other factors.
The goods/services offered may encompass many product categories or just one; quality may be low, medium, or high.
Pricing refers to the use of prestige pricing (creating a quality image), competitive pricing (setting prices at the level of rivals), or penetration pricing (underpricing other retailers).
Store atmosphere and customer services are reflected by the physical facilities and personal attention, return policies, delivery, and more.
Promotion involves activities in such areas as advertising, displays, personal selling, and sales promotion. By combining the elements, a retailer can devise a unique strategy.
A small shoe store can be a destination retailer when it is distinctive enough to cause consumers to go out of their way to shop there. It can become a destination retailer by being selling premium lines of shoes, selling special sizes (size 5 and smaller and size 11 and larger), appealing to consumers with orthotics, and having specially-trained personnel experienced with fitting consumers with special needs.
The wheel is based on four principles:
Many price-sensitive shoppers will trade customer services, wide selections, and convenient locations for lower prices.
Price-sensitive shoppers are often not loyal and will switch to retailers with lower prices. In contrast, prestige-oriented customers enjoy shopping at retailers with high-end strategies.
New institutions are frequently able to have lower operating costs than existing formats.
As retailers move up the wheel, they typically do so to increase sales, broaden the target market, and improve their image.
The wheel of retailing explains the evolution of retail institutions on the premise that new types of retailers first appear as low margin/low price operations offering minimum service. As they become successful, the innovators upgrade facilities and become vulnerable to new innovators with lower cost structures.
With a cost-containment approach, retailers strive to hold down both initial investments and operating costs. Many use this strategy due to intense competition from discounters, the need to control complicated chain or franchise operations, high land and construction costs, the volatility of the economy, and a desire to maximize productivity.
A driving force behind cost containment is the quest to provide good value to customers. However, value is typically subjective. It can be based on price, quality, service, convenience, or a combination of them. Price usually has a big role in what shoppers purchase and the firms they patronize.
Strategy mix for High-End
Location—high rental shopping center or central business district location.
Product—full assortment of name brand, quality European-made toys.
Service —technicians especially trained in assembling bicycles, and other items that require assembly.
Promotion—extensive advertising, and use of highly trained sales personnel.
Price—sale at list price.
Scrambled merchandising is popular for many reasons: retailers want to increase overall revenues; fast-selling, highly profitable goods and services are usually the ones added; consumers make more impulse purchases; people like one-stop shopping; different target markets may be reached; and the impact of seasonality and competition is reduced. In addition, the popularity of a retailer’s original product line(s) may decline, causing it to scramble to maintain and grow the customer base. For example, although Starbucks’ in-store coffee sales are still strong, it now faces more competition in the coffee market from Dunkin’ Donuts.
The prevalence of scrambled merchandising means greater competition among different types of retailers, and distribution costs are affected as sales are dispersed over more retailers. There are other limitations to scrambled merchandising, including the potential lack of retailer expertise in buying, selling, and servicing unfamiliar items; the costs associated with a broader assortment (including lower inventory turnover); and the possible harm to a retailer’s image if scrambled merchandising is ineffective.
The retail life cycle concept states that retail institutions—like the goods and services they sell—pass through identifiable life stages: introduction (early growth), growth (accelerated development), maturity, and decline. The direction and speed of institutional changes can be interpreted from this concept. Take a look at Figure 5-4. The figure shows the five stages of the retail life cycle, with a brief description of each. Examples of each stage are shown at the bottom of the figure.
During the first stage of the cycle, introduction, there is a strong departure from the strategy mixes of existing retail institutions. A firm in this stage significantly alters at least one element of the strategy mix from that of traditional competitors.
In the growth stage, both sales and profits exhibit rapid growth. Existing firms expand geographically, and newer companies of the same type enter. Toward the end of accelerated development, cost pressures (to cover a larger staff, a more complex inventory system, and extensive controls) may begin to affect profits.
The third stage of the retail life cycle, maturity, is characterized by slow sales growth for the institutional type. Although overall sales may continue to go up, that rise is at a much lower rate than during prior stages.
The final stage in the retail life cycle is decline, whereby industrywide sales and profits for a format fall off, many firms abandon the format, and newer formats attract consumers previously committed to that retailer type.
Mergers involve the combination of separately owned retail firms. Some mergers take place between retailers of different types, such as the ones between Sears (the department store chain) and Kmart (the full-line discount store chain) and between Saks Fifth Avenue and Lord & Taylor (both owned by mainstream Hudson’s Bay).
With diversification, retailers become active in businesses outside their normal operations, perhaps adding stores in different goods/service categories. That is why Bed Bath & Beyond now owns and operates Christmas Tree Shops (a bargain store chain), Harmon, and Harmon Face Values (discount store chains that emphasize cosmetics and health-and-beauty aids), as well as buybuy BABY (a store chain with 20,000-plus items targeted to parents of infants and young children).
Even though stronger firms are expanding, we are also witnessing downsizing—whereby unprofitable stores are closed or divisions are sold off—by retailers unhappy with performance. Because Kmart’s diversification efforts had poor results, it closed or sold its ventures outside the general merchandise store field (including Borders bookstores, Builders Square, Office Max, Payless shoe stores, and Sports Authority). It also closed many Kmart stores after merging with Sears.
Cutting Costs Wherever Possible
Given the thin profit margins for supermarkets and many other retailers, every penny of costs saved really matters. Given the thin profit margins for supermarkets and many other retailers, every penny of costs saved really matters. With regard to shopping carts, there are two associated costs that retailers want to reduce: paying employees to scour the parking lot to collect stray carts and the replacement costs of stolen and damaged carts.
Although not all-inclusive, these strategy mixes provide a good overview of store-based strategies. Please note that width of assortment is the number of different product lines carried by a retailer; depth of assortment is the selection within the product lines stocked.
A convenience store is typically a well-located, food-oriented retailer that is open long hours and carries a moderate number of items. The store facility is small (only a fraction of the size of a conventional supermarket) and has average to above-average prices and average atmosphere and customer services. The ease of shopping at convenience stores and the impersonal nature of many large supermarkets make convenience stores particularly appealing to their customers, many of whom are male.
A conventional supermarket is a departmentalized food store with a wide range of food and related products; sales of general merchandise are rather limited. This institution started more than 85 years ago when it was recognized that large-scale operations would let a retailer combine volume sales, self-service, and low prices. Self-service enabled supermarkets to cut costs as well as increase volume. Personnel costs were reduced, and impulse buying increased. The car and the refrigerator contributed to the supermarket’s success by lowering travel costs and adding to the life span of perishables.
2:25
Published on Feb 9, 2016
ABC’s Tina Trinh explores the technology being introduced into supermarkets to make for speedier checkouts and smarter stores overall!
1:47 mins.
Supermarket Of Tomorrow: Robot Stacking Your Food | CNBC
Published on Jun 18, 2015
At this futuristic grocery store, robots replenish shelves and illuminated tablets reveal the life of the food. The Future Food District is on view at the Milan Expo 2015.
A food-based superstore is larger and more diversified than a conventional supermarket but usually smaller and less diversified than a combination store. This format originated in the 1970s as supermarkets sought to stem sales declines by expanding store size and the number of nonfood items carried. Some supermarkets merged with drugstores or general merchandise stores, but more grew into food-based superstores.
A combination store unites supermarket and general merchandise in one facility, with general merchandise accounting for 25 to 40 percent of sales. The format began in the late 1960s and early 1970s, as common checkout areas were used for separately owned supermarkets and drugstores or supermarkets and general merchandise stores. The natural offshoot was integrating operations under one management.
The box (limited-line) store is a food-based discounter that focuses on a small selection of items, moderate hours of operation (compared with other supermarkets), few services, and limited manufacturer brands. This type of store carries under 2,000 items, few refrigerated perishables, and few sizes and brands per item. Items are displayed in cut cases, and prices are shown on shelves or overhead signs. Customers bag their own purchases. Box stores rely on low-priced, private-label brands. Their prices are 20 to 30 percent below those in supermarkets.
A warehouse store is a food-based discounter that offers a moderate number of food items in a no-frills setting. It appeals to one-stop food shoppers, concentrates on special purchases of popular brands, uses cut-case displays, offers little service, posts prices on shelves, and locates in secondary sites. These stores began in the late 1970s.
A specialty store concentrates on selling one type of goods or service line, such as young women’s apparel. It usually carries a narrow but deep assortment in the chosen category and tailors the strategy to a given market segment. This enables the store to maintain a better selection and sales expertise than its competitors, which are often department stores. Investments are controlled, and there is a certain amount of flexibility. Among the most popular categories of specialty stores are apparel, personal care, auto supply, home furnishings, electronics, books, toys, home improvement, pet supplies, jewelry, and sporting goods.
Concentrate on one good/service line; narrow, but deep assortment; knowledgeable sales personnel; intimate store size and atmosphere.
Galeria Kaufhof, a subsidiary of the Canadian Hudson’s Bay Company, operates 100 department stores in 80 German cities, such as Stuttgart. The chain generates several billion Euros in revenue each year.
Large store size; extensive assortment of goods and services; separate departments for buying, promotion, customer service, and control; employs at least 50 people; merchandise must include dry goods and household items; family wearing apparel and furniture, home furnishings, appliances, and TV sets; average to good quality; moderate to above-average prices; customer services are available; return and exchange privileges are provided.
Broad merchandise assortment; centralized checkout; self-service emphasized; catalog generally not available; private-brand nondurable goods and well-known manufacturer-brand durable goods; greater emphasis on auto accessories, gardening equipment, and housewares; inexpensive buildings, equipment, and fixtures; few credit sales; low prices.
A variety store handles an assortment of inexpensive and popularly priced goods and services, such as apparel and accessories, costume jewelry, notions and small wares, candy, toys, and other items in the price range. There are open displays and few salespeople. The stores do not carry full product lines, may not be departmentalized, and do not deliver products. Although the conventional variety store format has faded away, there are two successful spin-offs from it: dollar discount stores and closeout chains.
An off-price chain features brand-name (sometimes designer) apparel and accessories, footwear (primarily women’s and family), linens, fabrics, cosmetics, and/or housewares and sells them at everyday low prices in an efficient, limited-service environment. It frequently has community dressing rooms, centralized checkout counters, no gift wrapping, and extra charges for alterations. The chains buy merchandise opportunistically, as special deals occur. Other retailers’ canceled orders, manufacturers’ irregulars and overruns, and end-of-season items are often purchased for a fraction of their original wholesale prices.
The most important part of the strategy of off-price chains involves buying merchandise and establishing long-term relationships with suppliers. To succeed, the chains must secure large quantities of current fashion merchandise at drastically reduced prices and have a regular flow of these goods into the stores. They must continue to employ an opportunistic buying strategy. Off-price chains must be careful not to “ride up” the wheel of retailing through having more costly locations, or to get away from their traditional buying strategy.
The most important part of the strategy of off-price chains involves buying merchandise and establishing long-term relationships with suppliers. To succeed, the chains must secure large quantities of current fashion merchandise at drastically reduced prices and have a regular flow of these goods into the stores. They must continue to employ an opportunistic buying strategy. Off-price chains must be careful not to “ride up” the wheel of retailing through having more costly locations, or to get away from their traditional buying strategy.
A factory outlet is a manufacturer-owned store that sells closeouts, discontinued merchandise, irregulars, canceled orders, and sometimes in-season, first-quality merchandise. More factory stores now locate in clusters or outlet malls to expand customer traffic, and they use cooperative ads.
https://youtu.be/f8cyvpJYZlk URL
22.20 mins.
Outlets vs retail, and Winners prices: Sale fail? (CBC Marketplace)
CBC News
Published on Jan 8, 2016
Originally broadcast January 8, 2016
Factory outlets are manufacturer-owned stores where manufacturers sell merchandise that is discontinued, irregular, off-season, or not in full lots. In some cases items sold at factory outlets are goods that were returned from department and specialty stores. Factory outlets have become popular because they enable a manufacturer to retain control over merchandise and it can be quite profitable. Factory outlet malls also make outlet shopping more convenient for consumers. These malls have also increased the overall trading area of many outlets. It is likely that factory outlet stores will continue to grow due to these benefits.
Factory outlets are manufacturer-owned stores where manufacturers sell merchandise that is discontinued, irregular, off-season, or not in full lots. In some cases items sold at factory outlets are goods that were returned from department and specialty stores. Factory outlets have become popular because they enable a manufacturer to retain control over merchandise and it can be quite profitable. Factory outlet malls also make outlet shopping more convenient for consumers. These malls have also increased the overall trading area of many outlets. It is likely that factory outlet stores will continue to grow due to these benefits.
A membership (warehouse) club straddles the line between wholesaling and retailing. It appeals to price-conscious consumers, who must be members to shop there. Some members are small business owners and employees who pay a membership fee to buy merchandise at wholesale prices. They make purchases for use in operating their firms or for personal use and yield 60 percent of club sales. Most members are final consumers who buy for their own use; they represent 40 percent of club sales. They must pay an annual fee to be a member. Prices may be slightly more than for business customers.
The operating strategy of today’s membership club centers on large stores (up to 100,000 or more square feet), inexpensive sites, opportunistic buying (with some product discontinuity), a fraction of the items stocked by full-line discount stores, little advertising, warehouse-style fixtures, wide aisles to give forklift trucks access to shelves, concrete floors, limited delivery, and low prices. A typical club carries general merchandise, such as consumer electronics, appliances, computers, housewares, tires, and apparel (35 to 60 percent of sales); food (20 to 35 percent); and sundries, such as health and beauty aids, tobacco, liquor, and candy (15 to 30 percent). It may have a pharmacy, photo developing, a car-buying service, a gas station, and other items once seen as frills for this format. Inventory turnover is several times that of a department store.
The operating strategy of today’s membership club centers on large stores (up to 100,000 or more square feet), inexpensive sites, opportunistic buying (with some product discontinuity), a fraction of the items stocked by full-line discount stores, little advertising, warehouse-style fixtures, wide aisles to give forklift trucks access to shelves, concrete floors, limited delivery, and low prices. A typical club carries general merchandise, such as consumer electronics, appliances, computers, housewares, tires, and apparel (35 to 60 percent of sales); food (20 to 35 percent); and sundries, such as health and beauty aids, tobacco, liquor, and candy (15 to 30 percent). It may have a pharmacy, photo developing, a car-buying service, a gas station, and other items once seen as frills for this format. Inventory turnover is several times that of a department store.
At a flea market, many retail vendors sell a range of products at discount prices in plain surroundings. It is rooted in the centuries-old tradition of street selling—shoppers touch and sample items, and haggle over prices. Vendors used to sell only antiques, bric-a-brac, and assorted used merchandise. Today, they also frequently sell new goods, such as clothing, cosmetics, watches, consumer electronics, housewares, and gift items.
