retail strategy - i

7/31/2019 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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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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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

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