retailcompetition

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Presentation Transcript

Slide1: 

Retailing MKTG 3346 Professor Edward Fox Cox School of Business/SMU

Retail Competition Overview: 

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

Types of Retailers: 

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

Types of Retailers SIC System for Classifying Retailers: 

Types of Retailers SIC System for Classifying Retailers

Types of Retailers Sales by SIC Category: 

Types of Retailers Sales by SIC Category Source: U.S. Department of Commerce, 1998 Census of Retail Trade

Types of Retailers – Merchandise: 

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

Types of Retailers – Price: 

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

Types of Retailers – Service: 

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!

Retailers of Services: 

Retailers of Services Adapted from Levy and Weitz

Retailers of Services: 

Retailers of Services Adapted from Levy and Weitz

Focus on General Merchandise Retailers: 

Focus on General Merchandise Retailers Adapted from Levy and Weitz

Focus on General Merchandise Retailers – Department Stores: 

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 Threatens Mall-Based Department Stores! Adapted from Levy and Weitz

Focus on General Merchandise Retailers – Discount Stores: 

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! Adapted from Levy and Weitz

Retail Competition Example MARKET FOR WOMENS APPAREL: 

Retail Competition Example MARKET FOR WOMENS APPAREL Source: Levy and Weitz

Strategic Profit Model Overview: 

Strategic Profit Model Overview Source: Levy and Weitz

Strategic Profit Model Detail: 

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

Strategic Profit Model RETURN ON ASSETS: 

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

“Wheel of Retailing”: 

“Wheel of Retailing” Retailers Change Over Time in a Predictable Way Source: Levy and Weitz

Retailing and Competitive Advantage : 

Retailing and Competitive Advantage Competitive Advantage - An advantage enjoyed by a given retailer relative to others in the market General sources of competitive advantage: Overall cost leadership - can offer best value (i.e., lowest prices) or earn higher margins Wal-Mart Differentiation - unique product or service characteristics Abercrombie and Fitch, Papa Johns, Sewell Automotive Narrow customer focus (niching) - address wants and needs of particular customer segment(s) Container Store, Hallmark Adapted from Michael Porter

Competitive Positioning: 

Competitive Positioning Depends on: Retailer’s competitive advantage(s) Needs and wants of target customers Current perceptions of the retailer

Competitive Positioning – Examples: 

Competitive Positioning – Examples Convenience Away from Competitors Value, or Low Price Service; Ease of Shopping User Image Against a Competitor Wide Variety; Deep Assortment

Trends in Retail Competition: 

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

Trends in Retail – Blurring Formats: 

Trends in Retail – Blurring Formats Various Formats Now Offer: Pharmacy Financial Services, Banking Video Rental Prepared Foods The Service Aisle, or Perimeter Departments, Are Growing!

Retail Competition SHOPPING ACROSS RETAIL FORMATS: 

Shoppers are much more likely to shop at multiple formats in a given week than to shop at grocery stores alone Retail Competition SHOPPING ACROSS RETAIL FORMATS Data Source: IRI panel of 589 panelists from Oct 1995 - Oct 1997

Retail Competition SHOPPING ACROSS RETAIL FORMATS: 

Retail Competition SHOPPING ACROSS RETAIL FORMATS Category by category, which packaged goods purchases are made in which formats? Data Source: IRI panel of 589 panelists from Oct 1995 - Oct 1997 Packaged Goods Purchases in Retail Formats for Selected Categories

Trends in Retail – Consolidation: 

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 costs Source: Levy and Weitz

Revenue / Margin % Portfolio CONVENIENCE STORES: 

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 Cream HBC Hot Bev Juices Fountain Drinks GM Breads & Cakes Publications Groceries Salty Snacks Candy & Gum Milk Soft Drinks Beer Tobacco

Revenue / Margin % Portfolio GENERAL MERCH. DISCOUNT STORES: 

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'sWear Toys Kitchen/ House-wares Automotive

Revenue / Margin % Portfolio GROCERY STORES: 

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 Pasta Yogurt Toilet tissue Tuna Spaghetti sauce Crackers Cat litter Rices Teas Ice cubes Facial tissue Bleaches Cooking oils Peanut butter