Chapter Four: The Retail

Environment: A Situational and

Competitive Analysis

The one who adapts his policy to the times prospers, and likewise that the one whose policy clashes with the demands of the times does not.

– Niccolo Machiavelli

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Objectives

• Describe the information that comprises a situational analysis.

• Define the various types of retail establishments by ownership, strategy, and census classifications.

• Explain the purpose of methods such as NAICS and classification of retailers by ownership and strategy.

• Describe the elements that comprise a competitive analysis.

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The Situational Analysis

• Provides an overview of the company

• Includes

– Company analysis

– Product/service history

– Competitive analysis

– Geographical considerations

– Consumer analysis

– SWOT analysis

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Company Analysis

• Includes – Company mission and vision

– Sales and profit figures

– Risk position

– Corporate (or organizational) resources

– Aggressiveness

– Market share

– Sales trends

– Industry characteristics

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Product History and Analysis

• Product/service background, including

– Current problems facing the product, brand, or service

– Past retail successes or failures

– Past years' budgets and financial statements

– Past to present media spending

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Product History and Analysis (cont’d)

• Product evaluation should include: – The quality of the product or service – Assessment of how the product or service is

differentiated – Aspects that comprise the “total product” – Product history/additions/deletions – Product warranties/guarantees – Distribution efforts and effectiveness – The perception of the retailer from the

perspectives of intermediaries and consumers

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Types of Retail Institutions

• Several systems exist to classify retailers

• Types of classification methods

– Ownership

– Strategy

– Census Bureau (SIC/NAICS)

– Channel

– Nontraditional retailers

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Classification by Ownership

• Independent retailer

• Chain

• Franchise

• Cooperative

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Independents Advantages

• Quick response to customers

• Involvement in the community

• Lower retail expenses

• More opportunities to build customer relationships

Disadvantages

• Hard to take advantage of economies of scale

• Lower levels of expertise in functional areas

• Smaller number of employees

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Independents (cont’d)

• Competing with larger retailers • Improve merchandising

• Revive marketing practices

• Provide outstanding service to customers

• Treat the customer right

• Improve the efficiency of business

• Implement changes

• Build teams

• Develop strategic clarity

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Chain Stores

• Bulk of sales in retailing comes from chains

• Many chain stores are divisions of larger companies

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Chain Stores

Advantages

• Cost reductions through economies of scale

• Use information technology more

• Human resource capabilities to hire best and brightest

Disadvantages

• Higher costs

• Slower to respond to environmental changes

• Harder to tailor products to different geographical areas

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Franchises

• Advantages

– Smaller capital outlay required

– Established brand names

– Economies of scale achieved

– Training provided by franchisor on many functional areas

• Types

– Product franchising

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Types of Franchises (cont’d)

• Business franchising

• Trademark franchising

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Cooperatives

• Overcomes many disadvantages of smaller retailers

• Types

– Retail-sponsored co-ops

– Wholesaler-sponsored co-ops

– Consumer-sponsored co-ops

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Classification by Strategy

• General merchandise retailers

– Department stores

– Discount stores

– Specialty stores

– Off-price retailers

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Classification by Strategy (cont’d)

• Food retailers

– Conventional supermarkets

– Superstores

– Combination stores

– Super centers and hypermarkets

– Warehouse clubs and stores

– Convenience stores

– Limited-Line Stores

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Department Stores

• Carry a wide breadth and depth of products

• Offer more customer service than general merchandisers

• Organized by departments

• Use more IMC than other retailers

• Increase competition from specialty retailers and discounters

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Discount Stores

• Limited customer service

• Lower prices than department stores

• Merchandise viewed as less fashionable

• Focus on high-volume, low-cost products

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Specialty Retailers

• Carry a limited number of products within one or a few lines

• Use market segmentation strategy instead of mass marketing

• Customer service levels typically high

• Emergence of category killers

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Off-Price Retailer

• Sell brand name merchandise at everyday low prices (EDLP)

• Rarely offer many customer services

• Offer prices 40-50% lower than department stores

• Include outlet stores and one-price stores

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Food Retailers

• “Blurring” of retail channels

• Trend is to offer one-stop convenience

– Delis

– Greeting cards

– Floral departments

– In-store banks

– In-store pharmacies

– Child care

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Conventional Supermarkets

• Self-service food store that generates $2 million/year or more

• Typically carry grocery, meat, and produce

• Carry very little general merchandise

• Statistics

– 33,000 supermarkets in the U.S.

– $411.8 billion in sales

– Average weekly sales/supermarket - $361,564

• Rely on high inventory turnover

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Superstores

• Food-based retailers

• Larger than traditional supermarket

• Carry expanded services

– Deli, bakery seafood, nonfoods

• Range from 20,000 square feet to 150,000 square feet

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Combination Stores

• Combine food items with nonfood items

• One-stop shopping experience

• Common check-out area for both nonfood items and food items

• Typically 100,000+ square feet

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Super Centers and Hypermarkets

• Super center

• Based on European hypermarket format

• More than 40 percent of sales come from non-food items

• Customers willing to drive farther

• Wal-Mart leads the category

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Warehouse Clubs and Stores

• Lower prices and lower number of services

• Cater to small to midsize businesses in addition to final consumer

• Typically located in lower-rent areas of cities

• Very little merchandizing

• Often charge yearly membership fees

• Carry few perishable items

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Convenience Stores

• Carry very limited assortment of products

• Housed in small facilities

• Major sellers are cigarettes and non-alcoholic beverages

• Strategy is to intercept consumers between their home and work

• Higher prices than other formats

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Limited-Line Stores

• Food discounters that offer small selection at low prices

• No-frills stores that sell products out of boxes

• Carry few refrigerated items

• Often accept cash only

• Many carry private labels

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Classification by Census

• Census Bureau utilizes NAICS codes to classify businesses

• NAICS uses a system of numbers to classify industries and operations

• Establishes standard definitions for each type of business

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Classification by Channel

• Brick and mortar

• Nonstore retailers

• Bricks-and-clicks

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Nontraditional Retailers

• Direct Marketing

• Direct Selling

• Vending Machines

• E-tailing

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Competitive Analysis

• Retail classifications help to develop a competitive analysis

• Types of Competitors

– Intratype

– Intertype

– Divertive

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Competitive and Industry Analysis

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Economic Situations

• Pure competition

• Monopoly

• Monopolistic competition

• Oligopolistic competition

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