LOG 561 RETAIL MANAGEMENT

STRATEGIC PLANING IN RETAILING

Retail Strategy

• An overall plan for guiding a retail firm

• Influences the firm’s business activities

• Influences firm’s response to market forces

Six Steps in Strategic Planning

1. Define the type of business (corporate mission)

2. Set long-run and short-run objectives

3. Determine the customer market

4. Devise an overall, long-run plan

5. Implement an integrated strategy

6. Evaluate and correct (fine-tune)

Retail Strategy

• The overall plan or framework of action that guides a retailer• One year in duration• Outlines mission, goals, consumer market, overall

and specific activities, and control mechanisms

Elements of a Retail StrategyRetail Strategy

Benefits of Strategic Retail Planning• Provides thorough analysis of the requirements for

doing business for different types of retailers• Outlines retailer goals• Allows retailer to determine how to differentiate

itself from competitors• Allows retailer to develop an offering that appeals to

a group of customers• Offers an analysis of the legal, economic, and

competitive environment• Provides for the coordination of firm’s total efforts• Encourages anticipation and avoidance of crises

Components of Strategic Planning

• Strategic planning - Adapting the resources of the firm to the opportunities and threats of an ever-changing retail environment.

• Through the proper use of strategic planning, retailers hope to achieve and maintain a balance between resources available and opportunities ahead.

LO 1

Components of Strategic Planning

• Strategic planning consists of four components:– Development of a mission (or purpose) statement for

the firm.– Definition of specific goals and objectives for the firm.– S(strengths)W(weaknesses)O(opportunities)T(threats)

analysis.– Development of basic strategies that will enable the

firm to reach its objectives and fulfill its mission.

LO 1

Mission Statement

• It is a basic description of the fundamental nature, rationale, and direction of the firm.

• Elements of a mission statement are:– How the retailer uses or intends to use its

resources.– How it expects to relate to the ever-changing

environment.– The kinds of values it intends to provide in order

to serve the needs and wants of the consumer.

LO 1

Statement of Goals and Objectives

• Provide:– Specific direction and guidance to the firm in the

formulation of its strategy.– A control mechanism by establishing a standard

against which the firm can measure and evaluate its performance.

LO 1

Retail Objectives

LO 1

Statement of Goals and Objectives

• Market performance objectives– Establish the amount of dominance the retailer

seeks in the marketplace.– Market share - The retailer’s total sales divided by

total market sales.

LO 1

Statement of Goals and Objectives

• Financial objectives– Profit-based objectives - Deal directly with the

monetary return a retailer desires from its business.– Profit is the aggregate total of net profit after taxes

— that is, the bottom line of the income statement.– Profit can be expressed as a percentage of net sales.– It can also be defined in terms of return on

investment (ROI), which can be defined by—Return on assets (ROA) and Return on net worth (RONW).

LO 1

Strategic Profit Model

LO 1

Statement of Goals and Objectives

• Financial objectives– Stockouts - Products that are out of stock and

therefore unavailable to customers when they want them.

LO 1

Statement of Goals and Objectives

• Financial objectives– Productivity objectives - State the sales objectives

that the retailer desires for each unit of resource input.

• Space productivity - Net sales divided by the total square feet of retail floor space.

• Labor productivity - Net sales divided by the number of full-time–equivalent employees.

• Merchandise productivity - Net sales divided by the average dollar investment in inventory.

– Productivity objectives are vehicles by which a retailer can program its business for high-profit results.

LO 1

• Open or acquire on store over the next four years

• Remodel one existing store every three years• Increase operating profit margin in each story

by .25 percent for each six-month period• Increase clothing sales in existing stores by 10

percent over the preceding year

Strategies

• Are a carefully designed plan for achieving the retailer’s goals and objectives.

• Retailers can operate with three strategies:– Get shoppers into your store.– Convert these shoppers into customers by having

them purchase merchandise.– Implement the above two strategies at the lowest

operating cost possible that is consistent with the level of service that your customers expect.

LO 1

SWOT Analysis

• Strengths:– What major competitive advantage(s) do we

have?– What are we good at? – What do customers perceive as our strong points?

– Ikea– Target– McDonald's

LO 1

SWOT Analysis

• Weaknesses– What major competitive advantage(s) do

competitors have over us?– What are competitors better at than we are?– What are our major internal weaknesses?

– Ikea– Target– McDonald's

LO 1

SWOT Analysis

• Opportunities– What favorable environmental trends may benefit

our firm?– What is the competition doing in our market?– What areas of business that are closely related to

ours are undeveloped?

– Ikea– Target– McDonald's

LO 1

SWOT Analysis

• Threats– What unfortunate environmental trends may hurt

our future performance?– What technology is on the horizon that may soon

have an impact on our firm?

LO 1

Building competitive advantage

• Physical differentiation• The selling process• After-purchase satisfaction• Location• Never being out of stock

Strategies

• The retailer must develop a retail marketing strategy with strong financial elements.

• A fully developed marketing strategy should address the following considerations: the specific target market, location, the specific retail mix that the retailer intends to use, and the retailer’s value proposition.

LO 1

Strategies

• Target market - Group of customers that the retailer is seeking to serve.

• Location - Geographic space or cyberspace where the retailer conducts business.

• Retail mix - Combination of merchandise, price, advertising and promotion, location, customer service and selling, and store layout and design.

LO 1

Strategies

• Value proposition - A clear statement of the tangible and/or intangible results a receives from shopping at and using the retailer’s products or services.

LO 1

Organizational Mission

Retailer’s commitment to a type of business and to a distinctive role in the marketplace.

Developing an Overall Retail Strategy

RetailStrategy

Uncontrollable Variables:• Consumers• Competition• Technology• Economic conditions• Seasonality• Legal restrictions

Controllable Variables:• Store location• Managing business• Merchandise management and pricing• Communicating with customer

Retail Strategy– Low Costs

• Removal of bad costs• Use of private label products to

reduce costs of national/manufacturer brands

• Reduce product proliferation• Obtain best net price instead of focus

on promotional monies, trade incentives and forward buying

Retail Strategy– Low Costs (cont.)

• Supply chain initiatives• Low promotional expense (everyday low

pricing)• Proper employee utilization

Retail Strategy--Differentiation

• Well-thought out private labels (Trader Joe’s, Target, King Arthur flour, etc.)

• Hiring right employees (value-profit chain)• Empowering employees• Use of a fun atmosphere• “Little things that mean a lot”• Money-back guarantees

Legal Environment and Retailing

Store Location• zoning laws• blue laws• environmental laws• direct selling laws• local ordinances• leases and

mortgages

Managing the Business• licensing provisions• personnel laws• antitrust laws• franchise

agreements• business taxes• recycling laws

Legal Environment and Retailing

Merchandise Management and Pricing• trademarks• merchandise restrictions• product liability laws and lemon laws• sales taxes• unit-pricing laws• collusion laws• sale prices• price discrimination laws

Legal Environment and Retailing

Communicating with the Customer• truth-in-advertising and selling laws• truth-in-credit laws• telemarketing laws• bait-and-switch laws• inventory laws• labeling laws• cooling-off laws

Ownership and Management Alternatives

• Sole proprietorship is an unincorporated retail firm owned by one person

• A partnership is an unincorporated retail firm owned by two or more persons, each with a financial interest

• A corporation is a retail firm that is formally incorporated under state law; it is a legal entity apart from its officers

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Sample Strategic Plan

Sally’s is a small, independently owned, high-fashion ladies clothing shop located in a suburban strip mall. It is a full-price, full-service store for fashion-forward shoppers. Sally’s carries sportswear from popular designers, has a personal shopper for busy executives, and has an on-premises tailor. The store is updating its strategic plan as a means of getting additional financing for an anticipated expansion.

Checklist to Consider When Starting a New

Business

Checklist for Purchasing an Existing Retail

Business

Retail Strategic Planning and Operations Management Model

LO 2

The Retail Strategic Planning and Operations Management Model

• Operations management - Deals with activities directed at maximizing the efficiency of the retailer’s use of resources. It is frequently referred to as day-to-day management.

• The need to strive for a high profit is tied to the extremely competitive nature of retailing.

LO 2

Selected Kinds of Retail Goods and Service Establishments

Durable Goods Stores:Automotive groupFurniture and appliances groupLumber, building, and hardware groupJewelry stores

Nondurable Goods Stores:Apparel groupFood groupGeneral merchandise groupGasoline service stations

Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

Selected Kinds of Retail Goods and Service Establishments

Service Establishments (Personal):Laundry and dry cleaningBeauty/barber shopsFuneral servicesHealth-care services

Service Establishments (Amusement):Movie theatersBowling alleysDance hallsGolf courses

Selected Kinds of Retail Goods and Service Establishments

Service Establishments (Repair):Automobile repairCar washesConsumer electronics repairAppliance repairs

Service Establishments (Hotel):HotelsMotelsTrailer parksCamps

Image and Positioning

An image represents how a given retailer is perceivedby consumers and others.

Positioning Approaches

• Mass merchandising is a positioning approach whereby retailers offer a discount or value-oriented image, a wide or deep merchandise selection, and large store facilities.

• Niche retailing occurs when retailers identify specific customer segments and deploy unique strategies to address the desires of those segments rather than the mass market.

Niche Retailing by Babies “R” Us

Selected Retail Positioning Strategies

Target Market Selection

• Three techniques• Mass marketing• Concentrated marketing• Differentiated marketing

La Boqueria

Strategic Implications of Target Market Techniques

• Retailer’s location• Goods and service mix• Promotion efforts• Price orientation• Strategy

Additional Concerns for Global Retailing

• In addition to the strategic planning process:• assess your international potential• get expert advice and counseling• select your countries• develop, implement, and review an

international retailing strategy

Factors Affecting the Success of a Global Retailing Strategy

• Timing• A balanced international program• A growing middle class• Matching concept to market• Solo or partnering• Store location and facilities• Product selection

Factors to Consider When Engaging in Global Retailing