Overall Retailing Strategy

Next, a retailer develops an in-depth overall strategy. This involves two components: the aspects of business the firm can directly affect and those to which the retailer must adapt. The former are called controllable variables, and the latter are called uncontrollable variables. See Figure 3-9.

A strategy must be devised with both variables in mind. The ability of retailers to grasp and predict the effects of controllable and uncontrollable variables is greatly aided by the use of suit­able data. In Chapter 8, information gathering and processing in retailing are described.

1. Controllable Variables

The controllable parts of a retail strategy consist of the categories in Figure 3-9: store location, managing a business, merchandise management and pricing, and communicating with the cus­tomer. A good strategy integrates these areas, which are covered in depth in Chapters 9 through 19.

STORE LOCATION A retailer has several store location decisions to make. The initial one is whether to use a store or nonstore format. Then, for store-based retailers, a general location and a specific site are determined. Competitors, transportation access, population density, the type of neighborhood, nearness to suppliers, pedestrian traffic, and store composition are considered in selecting a location. See Figure 3-10.

The terms of tenancy (such as rent and operating flexibility) are reviewed and a build, buy, or rent decision is made. The locations of multiple outlets are considered if expansion is a goal.

MANAGING A BUSINESS Two major elements are involved in managing a business: the retail organization and human resource management, and the operations management. Tasks, poli­cies, resources, authority, responsibility, and rewards are outlined via a retail organization struc­ture. Practices regarding employee hiring, training, compensation, and supervision are instituted through human resource management. Job descriptions and functions are communicated, along with the responsibility of all personnel and the chain of command.

Operations management oversees the tasks that satisfy customer, employee, and management goals. Financial aspects of operations involve asset management, budgeting, and resource alloca­tion. Other elements include store format and size, personnel use, store maintenance, energy man­agement, store security, insurance, credit management, computerization, and crisis management.

MERCHANDISE MANAGEMENT AND PRICING In merchandise management, the general quality of the goods and services offering is set. Decisions are made as to the width of assortment (the number of product categories carried) and the depth of assortment (the variety of products in any category). Policies are set with respect to introducing new items. Criteria for buying decisions (how often, what terms, which suppliers) are set. Forecasting, budgeting, and accounting proce­dures are outlined, as is the level of inventory for each type of merchandise. Finally, the retailer devises procedures to assess the success or failure of each item sold.

With regard to pricing, a retailer chooses from among several techniques; and it decides what range of prices to set, consistent with the firm’s image and the quality of goods and services offered. The range of prices within each product category is determined, such as stocking carry-on luggage from $39 to $99. The use of markdowns is planned in advance: how often goods will be on sale and at what reduction from the usual selling price.

COMMUNICATING WITH THE CUSTOMER An image can be created and sustained by applying various techniques.

Physical attributes, or atmosphere, of a store and its surrounding area influence consumer perceptions. The impact of a storefront (building exterior or home page for a Web retailer) should not be undervalued, as it is the first physical element seen by customers. Once inside, layouts and displays, floor colors, lighting, scents, music, and sales personnel also contribute to a retailer’s image. Customer services and community relations generate a favorable image.

The right use of promotional tools enhances sales performance. Tools range from inex­pensive flyers for a take-out restaurant to an expensive national ad campaign for a franchise chain. Three forms of paid promotion are available: advertising, personal selling, and sales promotion. A retailer can gain free publicity if stories about it are written, televised, broadcast, or blogged.

2. Uncontrollable Variables

The preceding discussion outlined controllable parts of a retail strategy, but uncontrollable vari­ables must also be kept in mind. Uncontrollable parts of a strategy consist of the factors shown in Figure 3-9: consumers, competition, technology, economic conditions, seasonality, and legal issues. Farsighted firms adapt the controllable parts of their strategies to take into account factors beyond their immediate control.

CONSUMERS A skillful retailer knows it cannot alter demographic trends or lifestyle patterns, impose tastes, or “force” goods and services on people. The firm learns about its target market and forms a strategy consistent with consumer trends and desires. It cannot sell goods or services that are beyond the desired price range of customers, that are not wanted, or that are not displayed or advertised in the proper manner.

COMPETITION There is often little that retailers can do to limit the entry of competitors. In fact, a retailer’s success may encourage the entry of new firms or cause established competitors to modify their strategies to capitalize on the popularity of a successful retailer. A major increase in competition should lead a company to re-examine its strategy, including its target market and merchandising focus, to ensure that it holds a competitive edge. A continued willingness to satisfy customers better than any competitor is fundamental. Retailers should define competition broadly. Sales of perishables at Target, home cleaning supplies by Staples, and home delivery of groceries by AmazonFresh all constitute competitive threats to a supermarket chain.

TECHNOLOGY Computer systems are available for inventory control and checkout operations. There are more high-tech ways to warehouse and transport merchandise. Toll-free 800 numbers are popular for consumer ordering. And, of course, there is the Web. Nonetheless, some advance­ments are expensive and may be beyond the reach of small retailers. For example, although small firms might have computerized checkouts, they will probably be unable to use fully automated inventory systems. As a result, their efficiency may be less than that of larger competitors. They must adapt by providing more personalized service.

ECONOMIC CONDITIONS Economic conditions are beyond any retailer’s control, no matter how large it is. Unemployment, interest rates, inflation, tax levels, and the annual economic growth (known as gross domestic product, or GDP) are just some economic factors with which a retailer copes. In outlining the controllable parts of its strategy, a retailer needs to consider forecasts about international, national, state, and local economies.

SEASONALITY A constraint on certain retailers is their seasonality, as well as the possibility that unpredictable weather will play havoc with sales forecasts. Retailers selling sports equip­ment, fresh food, travel services, and car rentals cannot control the seasonality of demand or bad weather. They can diversify offerings to carry a goods/service mix with items that are popular in different seasons. Thus, a sporting goods retailer can emphasize ski equipment and snowmobiles in the winter, baseball and golf equipment in the spring, scuba equipment and fishing gear in the summer, and basketball and football supplies in the fall.

LEGAL RESTRICTIONS Table 3-4 shows how each controllable aspect of a retail strategy is affected by the legal environment.

Retailers that operate in more than one state are subject to federal laws and agencies. The Sherman Act and the Clayton Act deal with monopolies and restraints of trade. The Federal Trade Commission deals with unfair trade practices and consumer complaints. The Robinson-Patman Act prohibits suppliers from giving unjust merchandise discounts to large retailers that could adversely affect small ones. The Telemarketing Sales Rule protects consumers.

At the state and local levels, retailers have to deal with many restrictions. Zoning laws prohibit firms from operating at certain sites and demand that building specifications be met. Blue laws limit the times during which retailers can conduct business. Construction, smoking, and other codes are imposed by the state and city. Licenses to operate some businesses are under state or city jurisdiction.

For more information, contact the Federal Trade Commission (www.ftc.gov), state and local bodies, the Better Business Bureau (www.bbb.org), the National Retail Federation (www.nrf .com), or a group such as the Direct Marketing Association (www.the-dma.org).

3. Integrating Overall Strategy

At this point, the firm has set an overall strategy. It has chosen a mission, an ownership and man­agement style, and a goods/service category. Goals are clear. A target market has been designated and studied. Decisions have been made about store location, managing the business, merchandise management and pricing, and communications. These factors must be coordinated to have a con­sistent, integrated strategy and to account for uncontrollable variables (consumers, competition, technology, economy, seasonality, and legal restrictions). The firm is then ready to do the specific tasks to carry out its strategy productively.

Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.

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