retail strategy - i
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Retail Strategy-I
IBS - 2012
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Strategy
A strategy is the pattern or plan that integrates an organization'smajor goals, policies, and action sequences into a cohesive plan.
All types of businesses require some sort of strategy in order to besuccessful; otherwise their efforts and resources will be spenthaphazardly and likely wasted.
Formulation of an effective business strategy requires managers toconsider 3 main players
the company
its customers
the competition
Strategy is defined as the way in which a corporation plans todifferentiate itself positively from its competitors, using its relativecorporate strengths and weaknesses to better satisfy customerneeds
A method for making, doing, or accomplishing something
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Strategy
Effective business strategy should include three elements:
a clear and decisive statement of the primary goals or objectivesto be achieved
an analysis of the main policies guiding or limiting the company'sactions
a description of the major programs that will be used toaccomplish the goals within the limits.
It is important that strategies include only a few main concepts orthrusts in order to maintain their focus.
"Strategic decisions are those that determine the overall direction ofan enterprise and its ultimate viability in light of the predictable, theunpredictable, and the unknowable changes that may occur in its
most important surrounding environments,"
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Strategy
The strategic choices available to a company are not unlimited;rather, they depend upon the company's capabilities and its positionin the marketplace
Formulating competitive strategy involves the consideration of four
key factors that determine the limits of what a company cansuccessfully accomplish
Two of these limiting factors are internal, and the other two areexternal. The internal limits are the company's overall strengths and weaknesses
and the personal values of its leaders
The external factors are the competitive environment and societalexpectations under which it operates
Traditional & new approach of Strategy development
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Strategy
The number of potential business strategies are probablyas great as the number of different businesses.
Each distinct organization must develop a strategy that
best matches its internal capabilities and its situationwith regard to the external environment.
Strategy can be grouped under three main categories
cost leadership Differentiation
focus.
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Retail Strategy
It is the bridge between Retail Environment Analysis & MerchandiseManagement/Store Operation
Retail strategy provides the direction retailers need to take to dealeffectively with their
Environment Customers
Competitor
3 important element of retail strategy
Target market segment
Retail format
Sustainable competitive advantage
Strategy should help in building long term Competitive Advantageover others
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Retail Strategy
The term strategy is very frequently used in retailing. Fore.g. retailers talk of Merchandise strategy
Promotion strategy
Location strategy Pvt. label strategy
The term is used so commonly it appears that allretailing decisions are now strategic decisions.
Retail strategy is not just another expression of retailmanagement.
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Strategic Decisions by Retailers
Retail entry strategy
Retail market strategy
Financial strategy associated with market strategy
Location strategy for retail outlets
Organisation & HR strategy
Strategy on information flow & merchandise
Strategy to manage relationship with customer
Strategic decisions involve committing significant
resources to develop long-term advantages over
Competition
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Need for Retail Strategy
Growing intensity of retail competition due to Emergence of new formats
Technology innovations
Increasing reach & expansion Competition
Shift in customer needs & preference
forcing retailers to devote more attention to long-
term strategic thinking
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Retail Entry Strategy
Existing Retailer
Country/region/geography
Direct Investment/JV/Strategic alliance/
Acquisition/Franchisee Retail format selection
New Retailer
Developing new retail format
Acquisition
Backward or forward integration
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Retail Market Strategy
Is a statement identifying
1. Retailers target market: the market segments towards which theretailer plans to focus its resources & retail mix
2. Format the retailer wants to use to satisfy the target market needs:
Merchandise
Pricing
Advertising
Promotion
Store design
VM
location
3. The bases upon which the retailer plans to build a sustainablecompetitive advantage: is an advantage over competition that can bemaintained over a long time.
4. Determining the needs of the market & satisfying those needs more
effectively & efficiently than competition.
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Competitive Advantage
Any business activity that a retailer engages in can be a basis
for a competitive advantage
But some advantages are sustainable over a long period oftime, while others can be duplicated by competitors
7 important opportunities to develop competitive advantage Customer loyalty
Location
Human resource
Distribution & information system (Supply Chain)
Unique merchandise Vendor relation
Customer service
Retailersrely on multiple not on a single approach to buildsustainable advantage
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Methods For Developing
Competitive AdvantageSources of Advantage Sustainability of Advantage
CUSTOMER LOYALTY Building distinctive Brand Image, database, CRM
LOCATION Convenient location
HR Committed, knowledgeable, skilled employees
DISTRIBUTION & INFORMATIONSYSTEM
Shared system with vendors
UNIQUE MERCHANDISE Exclusive merchandise, Pvt. Label
VENDOR RELATION Ability to get scarce merchandise, exclusive rights
CUSTOMER SERVICE Build tradition & reputation; create service reputation
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Retail Growth Strategies
Market penetration: directing efforts towards
existing customers using present format
Market expansion: existing retail format in newmarket segments & geography
Retail format development (New) Diversification
Vertical integration
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Strategic Opportunity &
Competitive Advantage Retailers have greatest advantage in opportunities that
are similar to present retail strategy
When retailers pursue market expansion opportunities,
they build on their strengths in operating a retail format &applying this competitive advantage in a new market
Retailers would be most successful engaging inopportunities that do not involve
Entering new unfamiliar market Operating new unfamiliar formats
Retailers have least competitive advantage when theypursue diversification opportunities
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Global Expansion Strategy
International expansion is risky because retailers mustdeal with Govt. regulation
Cultural diversity
Different supply chain consideration Language
The key success factors for expansion are Globally sustainable competitive advantage
Adaptability
Global culture
Deep pockets
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Strategic Retail Planning Process
1. Define business mission
2. Conduct situation audit Market attractiveness analysis Competitor analysis Self-analysis
3. Identify strategic opportunities
4. Evaluate strategic alternatives
5. Establish specific objective & allocate resources
6. Develop a retail mix to implement strategy
7. Evaluate performance & make adjustments
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Define Business Mission
Mission statement is a broad description of a retailersobjectives & the scope of activities it plan to undertake
Objective of a publicly held firm is to
Maximize shareholders wealth Pay dividends
Increase value of share
Objective of small privately held firms is to Achieving specific level of income
Avoiding risks than maximizing income
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Mission Statement
Mission statement should answer 5
questions
1. What business are we in?
2. What should be our business in the
future?
3. Who are our customers?4. What are our capabilities?
5. What do we want to accomplish?
Sit ti A dit/M k t A l i
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Situation Audit/Market Analysis Market Factors
Size
Growth
Seasonality Business cycle
Competitive factor
Entry barriers
Bargaining power of vendor
Competitive rivalry
Environment factor
Technology
Economic
Regulator
social
Analysis of strength & weakness
Management capabilities
Financial resources
Locations
Operations
Merchandise
Store management Customer loyalty
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Market Factors
Size Large markets are attractive to big as well as small retailers
Some retailers prefer small markets
Growth
Growing markets are more attractive than mature & declining markets Some retailers prefer to locate in mature market
Seasonality Markets with highly seasonal sales are unattractive as a lot of resources
are needed to accommodate peak season
Resources are then underutilized the rest of the year
Business cycle Merchandise effected by economic conditions are less attractive that
markets unaffected by economic condition (food).
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Competitive factor
Entry barriers Economies of scale
Customer loyalty
Availability of good locations
Bargaining power of vendor Markets are less attractive when a few vendors control the merchandisesold in it
In this situation vendor can dictate price
Competitive rivalry (High competition means)
Large No. of competitors of about same size Slow growth
High fixed cost
Lack of perceived difference between competing retailers
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Environment factor
Technology Present competitors are vulnerable to new entrants that are
skilled at using technology
Economic During low unemployment wage bill is higher
Regulator FDI restriction, location restriction, area etc
Social Changes Trends in demographics, lifestyle, attitudes & personal values
affect retail markets attractiveness
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Analysis of strength & weakness
Management capabilities Capabilities & experience of top management
Depth of management- capabilities of middle management
Managements commitment to organization
Financial resources
Cash flow from existing business Ability to raise finance- debt, equity
Operations Overhead cost structure
Quality of operating system
Distribution capabilities MIS
Loss prevention system
Inventory control system
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Analysis of strength & weakness
Merchandise Knowledge & skill of buyer
Relationship with vendor
Capabilities in developing private brands
Advertising & promotion capabilities
Store management Management capabilities
Quality of sales associates
Commitment of sales associates to firm
Locations
Customer loyalty
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The choice of a store location has a profound effect onthe entire business life of a retail operation.
A bad choice may all but guarantee failure, a goodchoice, success.
Location decisions have strategic importance as theycan be used to develop a sustainable competitiveadvantage
Location is the prime consideration in a customers storechoice
Retail Location Strategy
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First Step
The first step towards choosing a retailbusiness location starts with theOrganizations Strategy & Objective.
Before you do anything else,
-define your type of business in the
broadest terms-determine your long term strategicobjective.
L ti S l ti
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Location Selection
A clear coherent strategy should specify location goals. Itis a strategic decision
Location selection involves evaluating a series of trade-offs
These Trade-offs generally concern the cost of thelocation versus its value to customers
Remember - The best available location can be
High Cost
Complicated Lease Expensive Furniture/Fitment
Remodeling Cost
Future Re-Development
Back-up Power
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Location Selection
Regional Analysis
Trade Area Analysis
Highest Demand
Managerial Control
Scale versus Cannibalization
Populations Demographic & Lifestyle Characteristics
Business Environment
Competition
Legal, Political & Cultural Environment
Site Analysis
Accessibility Road Pattern & Road Condition
Natural & Artificial Barriers
Visibility
Amount & Quality of Parking
Ingress & Egress
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Basic Types of Location
Mall & Shopping Centre
Central Business District
Freestanding Isolated : Category Specialists,Retailers with large Space requirement
Neighborhood
Mixed Use : Airport, Rly Stn, Hospital, PetrolPump, Shop-in-Shop
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Process of Deciding Location
Trading Area Analysis Primary Zone : 50-80% of Customers
Secondary Zone : 20% of Customers
Tertiary Zone : Occasional Customers
Grocery(1.5km)-Cosmetics-Apparel-Books-Music-Jewellery(3.5km)
Distance increases in high involvement categories
Distance is reducing with growth in stores
Trading Area Anal sis
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Trading Area Analysis Customer Spotting (Spot & Locate)
Number of Customers
Where They Live
Geographical Area Infastructure : Transport, Banking,Traffic
Economic Activities : Commercial & Industrial Activity
Housing Pattern: Multi Unit, Individual
Competition Overstored
Understored
Saturated
Avg.Sales/Outlet/sqft/employee/capita
Shoppers Profile Growing Population & Income
Size & Composition of Household
Age & Education Consumption Pattern
A l i Th Sit
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Analyzing The Site
To identify a site that suits the
Positioning Cost
Merchandise
Customers
SITE is decided based on the RETAIL FORMAT & spacerequirement of the store
Retail Format & Size of the store also influence Trading
Area Isolated Store
Unplanned Business District
Planned Business District
T f O
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Terms of Occupancy
Types of Lease
Percentage Lease Fixed Rate Lease
Terms of lease
Prohibited Use Clause Exclusive Use Clause
Escape Clause
Legal Considerations
Environmental Issues Zoning & Building Codes
Signs
Licensing Requirements
FSI in Indian CitiesAverage Mall Space Per Unit Of Land Area
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FSI in Indian CitiesAverage Mall Space Per Unit Of Land AreaPune 1.5
Greater Mumbai 1.79
Sonepat 1.92
West-Other Centers 2.02Delhi & NCR 2.05
East-Other Centers 2.08
Kolkata 2.24
Bangalore 2.44
Lucknow 2.48North-Other centers 2.48
Nagpur 2.61
Mysore 2.7
Indore 2.84
Ahmedabad 2.96
Jaipur 3.17
Kochi 3.53
Ludhiana 3.65
Chennai 3.67
South-Other Centers 3.74
Floor Space Index is lowest in Pune & highest in Hyderabad
Lower space index restricts construction of floor space
FSI is decided by the local Govt/Land Dept/Municipality
FSI is 5 to 15 in CBDs in other Asian countries & 10 to 15 in US
Low FSI actually increase land consumption
In Mumbai FSI is 1 for Suburbs, 1.33 for City, SRA 2.5 & DharaviRedevelopment Scheme 4.
GLA G L bl AAverage GLA Per Unit of Mall Space
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GLAGross Leasable AreaLudhiana 0.42Bangalore 0.48
Hyderabad 0.53
Ahmedabad 0.6
Chennai 0.63
Greater Mumbai 0.65
Lucknow 0.65
West-Other Centers 0.66
Nagpur 0.66
Kolkata 0.67
South-Other Centers 0.67
Delhi & NCR 0.67
East-Other Centers 0.69
Kochi 0.76
North-Other centers 0.77
Pune 0.78
Jaipur 0.82
Indore 0.85
Mysore 0.89Sone at 0.94
Ludhiana, Bangalore has 50% free movement spacewithin the mall
Sonepat & Mysore has 6 & 11% free movement space
within the mall
The more GLA a Mall has, it will have less space for
customer movement within
More GLA can also create congestion within the Mall
if footfall is high or during weekends.
In picking a store site most of us believe that it's
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In picking a store site, most of us believe that it senough to learn
-About the demographics ("people information
like age, income, family size, etc.) of thepopulation
-About the kind of competition they will be
facing, and
-About traffic patterns in the area they are considering.
Beyond a doubt, these factors are basic to all retail
location analysis.
Once you have spotted a tentative location using thesefactors, however, you have only done half the job.
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Before you make a commitment to movingin and setting up, you must carefully check
several more aspects of the location to
help insure your satisfaction & confidence
with the location for its Business
Success.
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Retail Compatibility
How important is retail compatibility?
For a small retail store in its first/initial year ofoperation, with limited funds for advertising andpromoting, retail compatibility can be the mostimportant factor in the survival of the store.
Will you be located next to businesses that willgenerate traffic for your store? Or will you be
located near businesses that may clash withyours?
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Merchant Association Most first time business owners have no idea how effective a strong
merchants association can be in promoting and maintaining the
business in a given area.
The presence of an effective merchants association can strengthenyour business and save you money through
group advertising programs
group insurance plans
collective security measures
A strong merchants association can accomplish through groupstrength what an individual store owner couldn't even dream of
Merchants associations can be particularly effective in the promotionof stores using common themes or events and during holidayseasons.
The collective draw from these promotions is usually several timesthat which a single retailer could have mustered.
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Responsiveness of the Landlord
Directly related to the appearance of a retail location is
the responsiveness of the landlord to the individualmerchant's needs.
Unfortunately, some landlords of retail businessproperties actually hinder the operation of their tenants'
businesses.
They are often, in fact, responsible for the demise oftheir properties,
-Restricting the placement and size of signs
-Forgoing or ignoring needed maintenance and
repairs
-Renting adjacent retail spaces to incompatible
or worse, directly competingbusinesses
Z i d Pl i
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Zoning and Planning
Town's Development Commission/ Authority can providewith the latest "mapping" of the retail location andsurrounding areas that you are considering
Most zoning boards, along with economic/ regionaldevelopment committees, plan several years in advance.
They can probably provide you with valuable insights tohelp you decide among tentative retail locations.
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Lease
Directly related to zoning is your intended lengthof stay and your lease agreement.
Before you enter into any rigid lease agreement,
you must get information on future zoning plansand decide how long you wish to remain at thelocation under consideration
E.g. Road Widening, Re-Development,Residential to Commercial Conversion etc
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Help in Choosing a Location
Choosing a retail location is, at best, a risky undertaking.
Considering the consequences of choosing a location that proves tobe unsuitable, it pays to get as much assistance as possible.
You may wish to hire a consultant to analyze two or three locationsthat you have selected. It costs less if you provide the consultantwith preselected potential locations than to have him or her initiate
an open-ended search for a location.
Other sources of information on potential locations include bankersand lawyers, who may have been in position to have observed overan extended period of time many locations where other clientspreviously did business.
Realtors can also provide information on location. Remember,though, their compensation is based upon commissions for rentingproperty
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The Importance & Objective of your business location istoMAXIMIZE REVENUE
To determine the success of the location, you need to
-Measure the sales per square foot
-Profitability per square foot
-Cost per square foot
One location may have higher traffic leading to moresales
But the additional rental cost may actually decrease theoverall profitability of the business