MKTG327:

Lesson 2 Overview

In this lesson, we will cover retail strategy. Retail strategy is an overall plan that guides a retailer’s actions. In most situations, a well-designed plan can mean the difference between success and failure.

As your textbook contends, failure to develop good plans can spell disaster. Think about your own life. If your family were going to drive from Cincinnati to San Diego, would your parents travel without a plan for which highways to use? They certainly could, but it might take your family much longer to get there. What about political candidates? They always have a game plan for an election and a huge staff of people guiding them on their journey to success at the polls. What about in your undergraduate career? Do you plan your assignments in a planner or iCal? You don't want to face all-nighters, incompletes, or worse! A well-designed plan of action is necessary in our own lives and in the life of a retailer.

Planning requires anticipation and organization focused on what needs to be accomplished. Planning impacts success in all arenas—personal, business, or even sports. Have you ever heard of Wayne Gretzky? Some say that Gretzky was one of the greatest hockey players to ever have played the sport. Most people say his success came from his agility, speed, and accurate shot. He acquired these skills by anticipating what abilities he'd need to be successful and then implementing a plan to develop them to the highest possible level. 

Gretzy once said, "Skate where the puck is going to be, not where it is." Gretzky's quote is all about anticipation—that is, the need to be proactive and not just react to situations and events. Success in retailing also requires anticipation. It's difficult to know in advance what styles will be successful in the upcoming season. Customers' needs and wants are constantly changing. Retailers must consistently adapt to the problems and opportunities of an ever-changing environment. Think about changing demographics, social changes, technological changes, and legal changes; for example, consider how the Internet has affected store-based retailing and how mobile technology changes shopping habits. In 2014, it was reported that mobile commerce would account for 33% of U.S. online holiday sales (AmeriCommerce, 2014).

So much change is happening. Mobile Internet connections are faster, hardware is better, and it's now common to use a phone or tablet in various settings. The way retailers anticipate and plan for changes will impact their success. That’s why retail strategy is so important!

Lesson Objectives

After completing this lesson, you should be able to

• define retail strategy and its components,
• explain why strategic planning is important for all types of retailers,
• explain how strategic planning and corporate social responsibility are interwoven,
• explain the steps in the strategic retail-planning process,
• define a strategic window of opportunity, and
• classify the different strategic growth opportunities retailers can pursue.

Lesson Road Map

By the end of this lesson, make sure you have completed the readings and activities found in the Lesson 2 Course Schedule.

References

AmeriCommerce. (2014). eCommerce Infographic: Holiday Sales 2014 [Infographic]. Retrieved from https://www.americommerce.com/blog/Holiday-Sales-The-Numbers-Infographic

What Is Retail Strategy?

As described in your textbook, "The term strategy is used frequently in retailing. For example, retailers talk about merchandise strategy, promotion strategy, location strategy, and private brand strategy" (p. 121). 

Think about some of the successful and unsuccessful retail strategies you have witnessed. Consider JCPenney's transition to JCP or Kentucky Fried Chicken's transition to KFC.

A retail strategy identifies the following things:

• The retailer's target market: This refers to "the market segment(s) toward which the retailer plans to focus its resources and retail mix" (Levy, Weitz, & Grewal, 2019, p. 121).
• The retailer's format: This refers to the retail mix the retailer plans to use to satisfy target market needs. Similar to a marketing mix, a retail mix outlines the way a retailer intends to appeal to its target market and meet its financial objectives. A retail mix includes
  • merchandise management,
  • price,
  • location,
  • customer service,
  • store layout and design, and
  • the communication mix.
• The retailer's sustainable competitive advantage: This concept refers to the basis upon which the retailer plans to build its niche among a market of competitors. True competitive advantages are sustainable over several years (or even decades). While other competitive differences are not sustainable because they are easily replicated by competitors almost immediately (e.g., lower prices can be easily matched by a competitor). By establishing a competitive advantage, retailers are giving customers a reason to choose their retail establishment over other options that are available to them in the marketplace. Think about a the "miracle mile" in your hometown with lots of restaurant choices. Why does a customer choose to frequent one restaurant over another? Is it price? Customer service? Food quality? Ambience in the restaurant? These features are competitive differences and some of them may become sustainable advantages to create long-term customer loyalty

Strategic planning and corporate social responsibility are often woven together to create a manangement focus in which companies take the ethical aspects of their business operations into consideration. These social concerns become a part of the firm's business strategies.  As a result, the firm is more conscious of its role in society and the communities in which they operate. In the retailing industry, corporate social responsibility addresses how retailers incorporate social and environmental concerns into their strategies and try to have a more responsible role in the marketplace and the world.

Examples of retailers acting as good corporate citizens are everywhere. Later in this lesson, we discuss Dunkin's move to be more sustainable by changing the beverage containers that hold their coffee. Sustainability is a major concern of corporate social responsibility. Another concern of corporate social responsibility was all over the news during spring 2020 with coverage of the racial injustice and racial inequality of the day. The news media aired the racial tragedies of George Floyd, Rayshard Brooks, and others. Consumer began to demand a response from not only their local authorities, but also from their local retailers. Can retailers play a significant role in healing these divides on race?  Read the statement by Matthew Shay, President and CEO of the National Retail Federation (NRF) from June 16, 2020.

Do some digging.  Find examples of what retailers are doing. Describe and critique.

See the example below about some of Walmart's efforts.

"Walmart said it’s made the decision to discontinue placing multiracial hair care and beauty products in locked cases, a practice that was in place in about a dozen of its 4,700 U.S. stores.  As a retailer serving millions of customers every day from diverse backgrounds, Walmart doesn’t tolerate discrimination of any kind. Like other retailers, the cases were to deter shoplifting of electronics, automotive, cosmetics and other personal care items,” the company said. “We’re sensitive to the issue and understand the concerns raised by our customers and members of the community" (Edelson 2020, para. 4-5).

References

Edelson, S. (2020, June 16). Retailers address racial inequality as consumers demand action. Forbes. Retrieved from https://www.forbes.com/sites/sharonedelson/2020/06/16/racial-equality-prompts-retail-soul-searching/#1a0c2e7c35e4

Why Is Strategic Planning Important?

Strategic planning is a necessary tool for retailers to remain successful in today’s highly competitive environment. Just take a drive down the "miracle mile" of your hometown or local community and look at the countless number of restaurants and stores. There are many retail options vying for a piece of the consumer’s pocketbook. Have you ever wondered how a store stays open when you never see cars in its parking lot?

Why Retailers Come and Go 

As we discussed earlier, retailers have been closing in record numbers - some due to their poor decisions and other factors out of their control (such as, the pandemic of 2020, economic pressures, consumers who have maxed out their credit cards, and so on). Over the years, one of the most notable closing was Toys R' Us. When Toys R' Us first opended it was like the panacea for toys. So what happened? It seems that once Walmart and Amazon moved heavily into toys, Toys "R" Us started losing its competitive edge. But of course, there were internal problems too. One year of very poor distribution at Christmas when lots of little kids did not get their toys, a website that lacked consumer functionality and ease of use—should I go on?

What can be learned from retailers that have come and gone? Go back in history a bit. Do any of you remember hearing the names Hills, Montgomery Ward, Circuit City, Ames, or Linens and More? You can probably add some names of your own; the list goes on and on. Think about this quote from Ernest Hemingway's The Sun Also Rises: "How did you go bankrupt? Gradually then suddenly" (p. 141).  What are the common threads among these failed retail chains? Consider these possibilities: Some expanded too quickly, others lost their key retail differentiation, and some used old approaches to approach new ways of competitive thinking.

Retail marketing strategy (or the lack thereof) plays a big role in why retailers come and go. Retailers often lose their competitive edge and no longer offer consumers a compelling reason to shop at their stores. Several years ago, two industry experts predicted problems in the retail industry. According to Anders and Stern (2004), "The retail landscape is littered with bodies of companies who simply were not good enough to compete for a customer’s business anymore…. Many of these companies were once shining stars of business" (p. 5).  Retailers need to beware of the "black hole"—the place where retail companies that are no longer relevant to customers go. Anders and Stern stress that retailers must have a defined position in the marketplace and in consumers’ minds. A retailer must be the best at something, whether it's price, solution-oriented service, fast service, dominant assortment, or fashion.

These factors create a lot of pressure for retailers and demonstrate why strategic planning is so important.  We know that retailers need to be flexible and have evolving business models.  Strategic planning allows all types of retailers to adapt and be proactive (not just reactive) to the opportunities and threats occurring in their constantly changing environments.

References

Anders, W., & Stern, N. (2004). Winning at retail: Developing a sustained model for retail success. Hoboken, NJ: John Wiley & Sons, Inc.

Hemingway, E. (1926). The sun also rises. Hemingway Library Edition. New York, NY: Charles Scribner's Sons.

The Strategic Retail Planning Process

Just like Wayne Gretzky in hockey, retailers have to be forward-thinking. They must adapt their organization's or store's resources to the problems and opportunities of the world around them. See Chapter 5 in the textbook for a complete review of the seven steps retailers typically take to accomplish this (also shown in Figure 2.1).

+ Figure 2.1 Text Description

Seven steps in the strategic planning process:

1. Define the Business Mission
2. Conduct a SWOT Analysis
3. Identify Strategic Opportunities
4. Evaluate Strategic Alternatives
5. Establish Specific Objectives and Allocate Resources
6. Develop a Retail Mix to Implement the Strategy
7. Evaluate Performance and Make Adjustments

Questions to Ask in the Strategic Planning Process

When conducting the strategic planning process, retailers need to be asking several questions:

• What business are we in? For example, do hospitals (retailers of health care services) only treat the sick? Or are they in the business of preventive medicine, too? What about Disney? Is it a media creator, a vacation resort, or a toy company? 
• What will our business be in the future? Consider the Internet and mobile technology: Will they alter or change the business? Video-rental retailers went bankrupt due to a variety of competitive alternatives, such as Netflix, Redbox, and pay-per-view videos on cable. Think about streaming TV and how it has cut into cable subscriptions. One of my favorite things to do is binge watch old TV series or start watching new ones, such as the cop drama Bosch on Amazon Prime.  Did you know that this new practice of watching television is defined by Netflix as watching two to six episodes of the same show in one sitting?
• Who are our customers? Retailers must consider the demographics and psychographics of their target audiences. Is the retailer’s target market one specific demographic (such as men for Men’s Wearhouse)? Or is it several demographics (such as a hairstylist who serves old and young, men and women, adults and kids alike)? Go to the website for Dr. Comfort and see the Men's Athletic Shoe.  Who are their customers? Probably not a website you would buy from, am I right?
• What are our capabilities? Recall Anders and Stern's (2004) suggestion that retailers need to be the best at something. Maxine Clark, founder of Build-A-Bear, wrote a book titled The Bear Necessities of Business (2006). Like Anders and Stern, Clark contends that retail marketing strategies must focus on the five pillars of success:
  • price,
  • convenience,
  • product,
  • customer service, and
  • overall experience.

To be viable and competitive, companies must have some capability in each of the categories. Prices must be set so that customers perceive value when comparing their offering to the competition. Some level of convenience must be extended to customers so that it's easy for them to do business with the company. (For example, hours of operation must meet the needs of busy families and working mothers.) Products must be desirable, something that customers want and believe they need. The level of customer service offered must be what customers expect. Clark’s last category is overall experience; for customers to continue to patronize a retailer, they must walk away from the purchase or service encounter with an overall favorable experience. These same principles should apply to online retailers as well as brick-and-mortar retailers.

• What do we want to accomplish? Goals must be set for strategic planning to be successful. Retailers need a target—clearly set goals with a strategy to achieve them. REI, an outdoor gear and apparel retailer that focuses on sustainable business operations, lays out specific initiatives that it plans to accomplish on its Sustainable Operations website:
  • greenhouse gas emissions reduction (climate-neutral operations by 2020);
  • managing energy use while growing the business, becoming a zero waste-to-landfill organization by 2020;
  • mindful paper usage and sustainable forestry;
  • green building; and
  • product sustainability disclosure and rectification of product impact.

References

Anders, W., & Stern, N. (2004). Winning at retail: Developing a sustained model for retail success. Hoboken, NJ: John Wiley & Sons, Inc.

Angulo, I. (201=8, February 7). Dunkin' Donuts aims to ditch foam cups for paper by 2020. Retrieved from https://www.cnbc.com/2018/02/07/dunkin-donuts-aims-to-ditch-foam-cups-for-paper-by-2020.html

Clark, M. (2006). The bear necessities of business: Building a company with heart. Hoboken, NJ: John Wiley & Sons, Inc.

Strategic Windows of Opportunity

Retail activities do not take place in a vacuum; they take place in a macro environment (sometimes called the external environment) that is rather volatile, in a constant state of change. At least in the short run, retailers cannot control the changes taking place in the environment. Instead, they must adapt to the current changes and prepare for future changes. By systematically analyzing the environment, companies search for strategic windows of opportunity.

Retailers look for strategic windows of opportunity by identifying and responding appropriately to unfulfilled consumer needs and emerging marketplace trends. Retailers search for lucrative market opportunities, trying to understand trends and megatrends and to avoid possible threats in the market environment. The role of a SWOT analysis (Step 2 of the strategic retail planning process) is to uncover present and future influences on the retailer.

Read about the specific market, competitive, and environmental factors that can impact a retailer in this lesson's assigned textbook reading. Think about some of the environmental changes occurring today. For example, people are more health conscious about the food they eat (e.g., organic produce and meats), more concerned about the environment (e.g., sustainability), and more interested in making experiential purchases (e.g., traveling to Bora Bora). 

How will these changes affect retailers? Do they create any specific opportunities or threats?

Have you ever heard of TreeHouse?  It was a home improvement retailer but  very different than Lowe's or Home Depot. It offered "a carefully curated selection of products and services that promoted healthful and sustainable living spaces, with an emphasis on performance and design. Every product was scored based on health, performance, corporate responsibility and sustainability" (Wilson, 2016, para. 5).  TreeHouse had responded to a window of opportunity—that is, consumer preferences for more sustainable products and services.  The retailer ran into financial problems.  Do you think that only specific demographic groups and areas of our country would be receptive to this type of retailer? Would you be willing to pay more for these types of products? Unfortunately, the retailer could not meet its financial goals and went out of business in 2018.

References

ChangeUp Inc. (2017, Spring). The New Shopper Mindset. Uptake: A ChangeUp newsletter. Retrieved from https://www.changeupinc.com/wp-content/uploads/2017/12/Q1-2017-Newsletter-050117-2.pdf

Hartley, R. F. (2009). Marketing mistakes (11th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

Retail Industry Leaders Association (2018). Sustainability / Environment. Retrieved from https://www.rila.org/sustainability/Pages/SustainabilityHome.aspx

Salpini, C. (2019, April 22). For the birds: This DTC brand is flying high on sustainable wings. Retrieved from https://www.retaildive.com/news/for-the-birds-this-dtc-brand-is-flying-high-on-sustainable-wings/552698/

Wilson, M. (2016). TreeHouse ready to branch out with more stores. Chain Store Age. Retrieved from https://www.chainstoreage.com/news/treehouse-ready-branch-out-more-stores/

Growth Opportunities

Retailers today need a growth orientation, but not a reckless one. If a retailer isn't growth minded, its ability to attract qualified staff (human resources) diminishes. Customers see growing retailers as reliable, eager to please, and constantly improving.

Vitality is required for survival in today’s competitive marketplace; however, it's difficult to maintain without growth. There are many examples in the news of retailers pursuing various growth strategies. Amazon is one of the retailers we frequently hear about that is pursuing growth opportunities.  Amazon's proposed installation service would enter a niche similar to the one currently occupied by Best Buy's Geek Squad. Amazon also wants to move into delivery services, an industry that has previously been dominated by companies like FedEx and UPS. Read about the reasons why Amazon wants to start its own delivery service in an article in Fortune (2018).

Another example of an established company pursuing a growth strategy is Canton, Massachusetts–based Dunkin' Donuts. In 2018, Dunkin' Donuts decided to drop the word donuts from its name. The idea of rebranding was considered a growth opportunity to encourage consumers to think of them not only as a breakfast choice but also for other meals and snacks throughout the day.  Forbes reported, "In the case of Dunkin' Donuts, the company has emphasized that the Dunkin'-only name is a continuation of the 'America Runs on Dunkin'' campaign that has been around for over a decade. Either way, this is substantial attempt to shift away from the word 'donuts'" (Lee, 2017, para. 6). 

Also trying to change consumer perceptions was Kentucky Fried Chicken, which moved to rename itself KFC.  KFC felt that in our day of consumer preference toward "healthy" food choice, having the word, "fried," in the brand name would not give the needed positive responses to push consumer sales.

Types of Growth Opportunities

The text discusses four growth opportunities that retailers may pursue: "market penetration, market expansion, retail format development, and diversification" (Levy, Weitz, & Grewal, 2019, p. 132). In your Principles of Marketing class, you probably discussed the product-market growth matrix. These growth opportunities mirror the same framework. Click on each tab to see more detail about each type. (Note: The first View All tab allows you to see all four types at once.)

Logistics and Customer Service Problem with Utilizing a Growth Strategy

See the customer feedback below about the British retailer, JoJo Maman Bébé. If you were hired as a retail consultant for JoJo Maman Bébé, what would you suggest? How has its growth strategy created problems in omnichannel management? Given its recent store openings in the United States, will any of the problems discussed above become resolved? Be specific.

An International Retailer Struggles to Satisfy a Customer in the United States

Background

The following testimonial is from a customer who made a purchase from British retailer JoJo Maman Bébé, which specializes in maternity clothing, baby wear, and nursery products. JoJo was founded in 1993. Then in 2017, the retailer launched a new U.S. company and began rolling out additional stores in the UK and Ireland. In 2018 it opened a few stores on the East Coast—in New York, New Jersey, and Connecticut (Farrell, 2017; Hall 2018).

Emily: A Customer Testimonial

"In October of 2017, I received a catalog for a company called 'JoJo Maman Bébé,' a British clothing company for mothers and babies. We had a four-month old baby and therefore, had started to receive lots of infant and baby catalogs. JoJo really caught my eye—because it was located in England. I had purchased clothes for myself multiple times at a similar British company, Boden, because their clothing is of high quality and has fun patterns and colors. Glancing at the catalog for JoJo, it seemed very similar to Boden.

Now that we had a new baby, I was hoping to buy some special outfits for the upcoming holidays. So, I decided to purchase a few outfits, winter hat, and quilted sack for transporting the baby in his car seat. It is always hard to know with babies what size will fit them—and so moms end up guessing—and are often wrong. So, I ordered the same outfit in two sizes, thinking I would return what didn’t fit. The clothes weren’t cheap—each outfit ran about $40, which is a lot for an infant, but I hoped the quality would be similar to what I experienced with Boden.

My first issue with the purchase was the shipping—each item shipped separately, and all told, it took about 3 weeks for me to receive 4 separate packages. THREE WEEKS—are you kidding me? I get my Amazon Prime in 2 days.

As it turned out, the items were adorable—and very high quality. But the sizing was totally off—one size was too small, another much too large. I needed to return two of the four items but the website had no return instructions—just "call us for returns."

I tried calling, but the recorded message said that their headquarters were located in England, and customer service reps could assist between 3am-5pm EST M-F. Time change issue completely overlapped with my workday schedule (as a physician at Yale Medical Center in Connecticut). As you can imagine, I don't have much free time. When I was eventually able to sneak away from work to call customer service, I was told they would send me a return label to adhere to the package. Then, I must mail back the package for a refund.

One month later, I still hadn’t received a refund. I called again (which again, took a significant effort since their customer service office operated on UK time). I was told it was in process, and they should be able to refund me in the next few days. A week later, the refund processed.

All in all—I will never shop at this retailer again. Their clothing is adorable but not worth the hassle. 

All in all—I will never shop at this retailer again. Their clothing is adorable but not worth the hassle. They have significant issues with distribution and all of their major customer touchpoints. It took far too long to receive the products in the first place and they were sent in four different boxes at four different times. The lack of information on their website on "how" to return items was not acceptable. Their refund repayment process was far too long. Meanwhile, JoJo had already charged by credit card and had my money. Even though they were selling to the US market, it seems that everything was conducted through their headquarters in England. Maybe now that they have stores open in the USA it will be different. But, I am not hopeful. I am choosing to go back to their UK competitor, Boden—who now carries an infant and children’s clothing line—and has none of these problem. Boden seems to have figured out how to expand internationally and successfully market to us in the USA.

Throughout this course there are numerous sections like this one, entitled "Food for Thought." These sections are filled with current-day issues or application of text material. Their intent is to be thought-provoking and spur discussion among your classmates. During the semester, you are required to choose two Food for Thought prompts and write a response/reaction for each.

References

Farrell, S. (2017). US expansion boosts JoJo Maman Bébé sales. Insider Media Limited. Retrieved from https://www.insidermedia.com/insider/wales/us-expansion-boosts-jojo-maman-bebe-sales

Hall, P. (2018). JoJo Maman Bébé to open first U.S. stores in Greenwich and Westport. Daily Voice Plus. Retrieved from https://dailyvoiceplus.com/fairfield/fairfield-business-journal/real-estate/jojo-maman-bebe-to-open-first-us-stores-in-greenwich-and-westport/753812/?utm_source=Fairfield%20County%20Business%20Journal

Lee, B.Y. (2017, August 6). Dunkin' Donuts moves to drop the "donuts" from its name. Forbes. Retrieved from https://www.forbes.com/sites/brucelee/2017/08/06/dunkin-donuts-tries-to-drop-the-donuts-for-now/#7ba70dfa151a

Concluding Remarks

In this lesson and the associated textbook chapter, we discussed the retail strategic planning process and its importance for retailers in today’s competitive marketplace. Retail strategy was described as an overall plan that guides a retailer's decisions, developed through the strategic retail planning process. The steps of this process are discussed in depth in your textbook chapter.

Retailers must set goals and objectives that are derived from their mission statement. Goals and objectives give the retailer direction on where it's headed and what will be needed to get there. Have you ever read Lewis Carroll's Alice's Adventures in Wonderland? There is a wonderful dialogue between Alice and the Cat that speaks to the need for goals, whether in our personal lives or in business:

"Would you tell me please, which way I ought to go from here," asked Alice.

"That depends a good deal on where you want to get to," said the Cat.

"I don’t much care where—" said Alice.

"Then it doesn’t matter which way you go," said the Cat. (Carroll, 1920, p. 89)

Goals and objectives set the course for our planning.

Retailing objectives may focus on market performance (obtaining a specific level of sales and/or market share), financial objectives (return on investments or profit), societal objectives (supporting local communities or the environment), and personal objectives (enjoyment or feelings of achievement). Financial objectives are paramount, because if the retailer isn't making money, the organization will go bankrupt. However, other objectives are important as well, acting as guiding forces for day-to-day activities.

This lesson also provided a discussion on corporate social responsibility and how retailers are facing the racial inequality and injustice felt by many people in our communities. Next, strategic windows of opportunities were discussed.These opportunities or holes in the marketplace often fit the firm's capabilities and are being overlooked by competitors. These opportunities, along with threats or problems that exist in the environment, become apparent to retailers when they conduct a SWOT analysis. A complete description of how to conduct a SWOT analysis appears in the textbook chapter. 

Finally, you learned about four types of growth opportunities for retailers. Successful retailers are committed to growth; those that end up in the black hole of bankruptcy are not. As marketing consultant Jeff Sauer (2014) says, "If your company is not growing, then something is dying. The business owners lose profit, employees, their own equity, or they lose a combination of all three" (para. 22).

References

Carroll, L. (2010). Alice's adventures in Wonderland. London, United Kingdom: Macmillan & Co., Ltd.

Sauer, J. (2014). Career advice for advancement #4: If you're not growing, you're dying. Jeffalytics. Retrieved from http://www.jeffalytics.com/growing-business-advice/