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STORE OPERATIONS
There is a continuing trend toward shrinking profit margins on most primary or utilitarian retail
items. This, in turn, requires tighter internal cost controls, promotion of higher margin products
and services, and elimination of unprofitable items. Most retail operations have eliminated free
home delivery and ended real estate ownership, leasing instead. At the same time the number
of stores is coming down all the time, with the volume for the remaining operations rising.
The question is: Will the changes in the future allow the same volume with 25 percent fewer
stores and with a 20 percent decline in the number of items carried. For example, 10 years ago,
stores with $25 million in sales averaged over 100,000 items on the shelves. Today, the number
of items carried has dropped and is continuing to drop, with just-in-time (effectively 1-2 delay)
inventory activities on the rise in many retail categories. Likewise, productivity levels have
changed dramatically, requiring even greater flexibility in store layouts. One reason for this is
the growth in the number of self-service racks, automatic vending machines, and similar
developments.
In the mid 1980s, approximately 50 percent of all department store volume was self-service; it
is estimated that currently the number is in excess of 60 percent. This trend will continue.
discounters and warehouse selling centers, the lines between budget and upscale have become
increasingly blurred.
There’s no doubt that retailers need to go through a shakeout before the industry can prosper
again. With over 19 square feet of space for every person in the country, more than double the
COMPETITIVE TRENDS
With cable TV home shopping networks, catalog stores, direct mail, telemarketing, etc., it does
not appear that as much merchandise activity will be in the stores. In 1984, less than one-third
of all retail business was conducted outside the retail store; in 2001 it was estimated that in
excess of 55 percent of retail business was conducted outside the store. This trend has
and many other developed countries.
The trend to specialization and “category killers” began in the 1980s. Today, following on the
precepts of the “Wheel of Retailing,” the general merchandisers continue to develop boutique
and specialty shop areas within department stores. Even more important is the trend toward
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clothing.
FUTURE STRATEGIES
Retailing faces some fundamental problems. This is an industry that has lost touch with its
customers. The consumers who made shopping a recreational sport in the 1980s now have less
time, less money, and less stomach for the whole experience. With 75 percent of women
simple: more for less. Wal-Mart and Home Depot became national powerhouses based on this
simple insight. They did it by relentlessly cutting costs at every stage, from manufacturer to
store shelf, and by demanding help from their suppliers who became increasingly dependent on
them as they grew in size and clout. Since 1984, Wal-Mart’s expenses have shrunk from 19.1
29.4 percent; Caldor Corp., also bankrupt, had a 24.4 percent expense ratio. Likewise Kmart
Corp. devoted 22.2 percent of its sales to expenses and went into bankruptcy during January
2002.
There is no one formula for retailing success. Some hyper-efficient operators, such as
Wal-Mart Stores Inc. and Home Depot Inc., have expanded their offerings and reduced their
prices. Single-minded specialists, meanwhile, dominate narrow categories such as sunglasses
or pet specialties with the deepest selections and competitive prices. Still other retailers are
staking their claim to convenience, whether it’s McDonald’s Corp., making sure you can buy a
Big Mac wherever you happen to be, or other firms that let you shop by phone or Internet for
everything from a new car to a vacation. There are even signs of life among department stores,
especially those with successful Internet business-to-consumer sites. It appears that for the time
being they have pared down their operations and have fought to a standstill with the specialty
retailers.
Some other examples include retailers who have never been considered efficient or interesting.
Such formats as supermarkets, hardware stores, discount stores, travel agencies and car
dealerships are being transformed or superseded. From vast megastores to tiny one-product
kiosks, new kinds of outlets are springing up that look nothing like the stores of 10 years ago.
The innovative retailers are taking market share from everybody else. Not all of these new
formats will succeed, but as retailers grapple with change these innovators point the way to the
possible “re-storing” of America.
Even as the number of stores declines, those that remain will get bigger. The “big box” or
“category killer” has already made its mark in some segments, such as home-improvement,
discounting and toys. Now, the approach of offering mind-boggling assortments of a familiar
product at a reasonable price is spreading to some surprising categories. Superstores devoted to
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single lines, from baby items to books, abound. Where does their market share come from?
Their share comes out of the hides of traditional stores that have already ceded entire
departments such as appliances, books, and sporting goods. The same thing will happen to
other categories.
Online retailing is still impacting retailers, but since the smartest physical retailers have
responded to the challenge, it is possible they will remain in the game. The number and
dollar-value of products ordered online from home has continued to rise every year and is
expected to continue for the indefinite future.
Note to the Instructor: Ask students what they would do to encourage consumers to spend
more time in-store shopping.
A. “International Retailing - Business Without Borders”
The focus is on the increasing level of cross-border retailing that is significantly changing the
modern marketing environment. There is emphasis also on the role of retailing in the larger
scheme of the overall marketing process and strategy. It is useful to update the examples so
that students will be able to identify readily with this concept based on their general knowledge
of the companies and products involved in the lecture / discussion.
Teaching Objectives
Stimulate students to think about important international retailing actions that impact
society.
Help students to learn more about the sophisticated techniques and abilities that
multinational retailers possess and how they use them to gain competitive advantage.
Make clear to students the high level of knowledge-intensity required to compete in
markets at home and around the globe.
Discussion
INTRODUCTION
“I remain adamant that consumers, products, and communication will always be local.” That
comment, made by the CEO of Nestle, may seem unusual for the leader of a global giant. But
many agree with him.
From one point of view, despite the talk of globalization, there is no such thing as a global
consumer. Most large companies are well aware of the necessity to adapt their products to
differing regional or national tastes and needs.
However, based on research conducted over the past three years by Ernst & Young with more
than 10,000 consumers, there is also a universal desire to be treated with respect, courtesy, and
honesty, regardless of the product purchased or the retail channel shopped. It is clear that
global retailers understand the need to provide local content in their commercial offerings
while at the same time surrounding those offerings with the kind of contextual values desired
by consumers.
This formula explains the global success of companies such as Wal-Mart. Consider that in less
than a decade since Wal-Mart opened its first store outside the United States, the company has
become the world’s largest retailer, with more than 1,100 stores in nine countries in addition to
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its 3,200-plus units in the United States. There’s little denying that retailing rapidly has become
a global business.
TRENDS
Retailers often are the first to recognize the actual trends among billions of consumers.
Wal-Mart and others are building their retail operations beyond their home base. German-based
Metro AG, the fifth-largest global retailer, now operates in 20 countries through its Metro Cash
& Carry subsidiary, which achieves 75 percent of its sales abroad. Similarly, Cologne-based
Rewet Retail Group, No. 11 on the list of leading global retailers, operates in 11 European
countries that account for 20 percent of the company’s total sales.
European retail giant SPAR, operating 16,800 stores on five continents, moved into the Russian
market in 2001, opening its first store in Moscow. The Home Depot, headquartered in Atlanta,
bowed out of Chile and Argentina due to the lingering recession in those nations, but it
expanded its operations through its acquisition of Total Home, a Mexico-based home center
retailer.
In terms of global ranking, Wal-Mart and French hypermarket operator Carrefour are No. 1 and
2, followed by Kroger and Home Depot. Then there are two big European firms, followed by
Kmart, Albertson’s, Sears, and Target (the top 10 in the world). Other significant international
retailers include electronics retailer Best Buy, office products retailer Staples, and
Swedish-based furniture chain IKEA.
TECH SUPPORT
What does it take to succeed as a global retailer? Let’s start with technology. Recent retail
growth largely reflects the benefits from the introduction of electronic-data interchange,
barcode developments, radio-frequency gun screening and improved inventory management.
Such developments, together with Information Technology (IT) and, of course, the quality of
management, are the keys to raising productivity.
The emergence of virtual business-to-business marketplaces, including CPG Markets,
Transora, GlobalNetXchange, and the WorldWide Retail Exchange, are another major
development. These e-marketplaces potentially can play a vital role in a global-retailing
environment because they also give rise to the need for standards. To maximize the potential of
these exchanges, we need to speak one language across our worldwide sector.
Work on such standards predates the B2B exchange. In late 1999, the Global Commerce
Initiative (GCI), which consists of representatives from more than 45 retail and manufacturing
companies doing business across continents or via global supply chains, was formed. The
voluntary body was designed to improve the performance of the international supply chain for
consumer goods through the collaborative development and endorsement of recommended
standards and key business processes.
The chairman and CEO of U.K.-based Marks & Spencer pointed to the accelerated pace of
change in global retailing. Today, with the rapid emergence of the Internet, exchanges, and
improved information technology, the pressure to develop a common language of business is
more intense and more immediate than anyone imagined just a few years ago.
The search is on for a unifying force to bring manufacturers and retailers together on a
worldwide parity basis to simplify global commerce and improve consumer value in the overall
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retail supply chain. Proponents point out that standardization will not only improve efficiency
in the supply chain, but it also will decrease the waste of raw materials and consumer products,
through better and faster combinations of supply and demand. These developments will turn
many logistical dreams into daily reality: having the right product at the right place at the right
time.
After all, should this not be the goal of any global retailer? Regardless of what technology
applications retailers are investing in, the critical criterion should be on those systems that
support a company’s consumer-centric strategy. Too often, IT applications do not align with a
company’s strategic framework, resulting in misdirected investments. This becomes a critical
issue as companies face increasing cost pressures in the weakening global economy.
Successful global retailers recognize the need for alignment between their strategy and their
technology. Consider The Home Depot, whose business strategy focuses first on product and
second on service. The home-improvement giant has staked out its competitive ground by
offering a broad assortment of nearly every type of hardware, lumber, and gardening product
consumers might need and offering superior service. IT activity clearly is designed to support
the service aspect of Home Depot’s strategy. In 2001, for instance, the company introduced a
new wireless scanner, called Unleashed. With it Home Depot Associates scan and record the
customers’ purchases while they’re in line. Once they get to the checkout counter, the cashier
electronically retrieves the purchase record. The customer then pays and is out the door.
Nobody likes waiting in line. Anything we can do to expedite this process makes customers
happier.
KNOWLEDGE AND ACCOUNTABILITY
Global retailers also are beginning to recognize that their business is more knowledge-intensive
than they may previously have thought. This led some operators to embark upon applied
knowledge-management projects within their worldwide operations. Analysts estimate that
sharing best practices throughout their far-flung organizations can contribute as much as 1 to 2
percent to the bottom line. The challenge comes in determining how to capture the best
practices, how to share the information and how to implement it. In fact, implementation and
execution remain key challenges in the retail sector, leading some global companies to consider
strategic outsourcing relationships for IT knowledge-management applications, as well as other
technology systems.
Global retailers also are emphasizing corporate social responsibility and environmental policies
and practices. Consumers and consumer groups increasingly make their choices, positively and
negatively, based on the social reputations of companies, and governments are acting to hold
companies accountable for their behavior everywhere in the world. All of this translates into a
need for companies to operate in a more transparent manner and to report on their social and
environmental policies and practices. Many believe that retailers should take the lead in
demonstrating and reporting on corporate social responsibility. Why? They are closest to
consumers.
Research has indicated that executives of global companies confirm that social accountability
and corporate responsibility have become increasingly important aspects of business. This is
for good reason. These are issues that matter to today’s consumers. Customers are looking for
commercial offerings to reflect fundamental human values, such as trust, respect, dignity, and
fairness (i.e., the context surrounding a transaction), and not simply the products and services
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themselves (the content of the transaction). The results of this consumer research formed the
foundation for the book The Myth of Excellence, published in July 2001. For more information,
visit www.us.cgey.com/consumerelevancy.
An example of the responsibility theme is Stop & Shop. The firm recently opened a new
low-energy superstore in Foxboro, MA. The project was the result of three years of research
and development aimed at reducing the energy usage of a single store by 30 percent.
Energy-saving features include skylights, dimming controls, high-efficiency luminaries,
state-of-the-art refrigeration systems, rooftop insulation and reflective paint, and construction
materials selected for their environmental performance and recycled content. By using
innovative methods to cut energy use, the company argues that it drives significant costs out of
the business and at the same time demonstrates a high level of commitment on the issue.
Studies indicate that their customers appreciate this.
The increasing consumer focus on value and values in commercial transactions is also one of
the drivers behind the growth of the so-called organic-products business. This fact has not been
lost on global retailers that have begun to devote more attention to the organic segment. As a
sign of its commitment to the organic market, British retailer Tesco recently announced a new
program to build its organic business to a level where it would account for at least 5 percent of
all food sold at the company’s stores. To reach that goal, the retailer plans to introduce
hundreds of new organic products in a wide variety of categories. “Our research has
highlighted a demand for change,” said the Tesco CEO when he announced the new program.
He went on to say, “Tesco’s success is based on understanding that change and making it
happen. They (customers) tell us that the main barriers preventing them from buying more are
availability and affordability. We are determined to act on these concerns.”
Food-safety issues also have clearly become top-of-mind in the global economy and are
reflected in the planned establishment of expanded food safety controls in the United States
and elsewhere. Executives from several European companies have listed food safety as the No.
1 issue facing their business. In the United States, food safety was also among the leading
concerns, although executives in the Asia Pacific region did not rank it quite as high on the list.
The emerging food-safety benchmarks provide standard against which existing standards can
be checked and validated. The effort involves retailers representing nearly two-thirds of food
retail revenue worldwide. The task force appointed by these retailers has identified four goals:
To have global food-safety standards as a benchmark model everywhere in the
world.
To maintain an early-warning system to avoid spillover into food-safety
incidents that could impact the consumer.
To develop joint food-safety initiatives with governments and organizations,
ensuring that safety practices are in place, and that they are properly controlled.
To inform consumers about food safety.
Key to food-safety initiatives is the growing role played by IT applications. Technology will be
a primary enabler of programs that focus on tracking and traceability and early-warning
systems, particularly in a global environment where the need to process food-safety
information quickly and effectively is crucial. Getting IT systems up to speed to handle these
kinds of applications will be of paramount importance.
THE FUTURE
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Looking ahead, many global retailers anticipate continuing to expand into new international
markets and to increase their global sourcing. As the marketplace evolves, one thing is certain:
Change will continue to occur at a rapid pace and those retailers that respond to consumers in a
fast and relevant fashion stand to succeed in the global economy.
Source: Chain Store Age Executive, December 2001.
II. Background Article
Issue: Retailing in the New Economy
Source: “Target unifies e-initiatives to enhance relations with customers,”
Retail Merchandiser, May 2002, p. 14.
Target Corp. wants its “expect more, pay less” message to ring clear across three technology
initiatives that are separate but closely linked to each other and the overall Target brand:
eTarget—its online selling arm that will soon integrate all Target-owned properties online, the
Target Smart Card Visa, and an enhanced category management strategy called Guest
Relationship Management (GRM).
These initiatives support what the president of Target.direct, labels as “Target’s six strategic
imperatives”: ascendance of the Target brand, improving the profit formula, consistent guest
experience, reinforcing price perception without sacrificing differentiation, sustaining a world
class team, and growing through multidimensional integration.
“We must have a vision that reinforces our core strategy,” says the head of the division. “A
retailer must achieve and convey a clear understanding of the what, why, and how of each
project. No experience is less important than another. This means consistent cross-channel
delivery. Technology also requires top management engagement.”
Via e-Target, a business arm that covers B2B, B2C and internal technologies, is spearheading
an online, cross-brand effort called Target.common. Each of the corporation’s store chains and
other sub-brands will retain its original URL. When a consumer logs on under an individual
name, he or she will automatically be linked to all selling channels. When a customer searches
for a product, all resources will be scanned. One online shopping basket will collect purchases
from multiple online sources. Target wants to create one basket, one search, and one
experience, and Channels owned by Target Corp. include Target, Mervyn’s and Marshall
Fields, the Clubb Wedd and Lullaby Club girl registries, Target Pharmacy, guest cards as well
as catalogs, and selections of books, music, and videos.
The concept reflects “the reality” of the fact that consumers shop multiple channels. While
Target’s Web sites use Amazon.com as a platform, target.direct “owns the customer” with
regard to collecting data and other initiatives. Created in early 2000, target.direct offers over
15,000 products and services.
With Smart Card, the Minneapolis-based retailer aims to be on the forefront of this burgeoning
data collection/consumer payment technology. Participating guests even receive a Smart Card
reader for their home computers. By November 2002, every store will also have a Smart Card
reader. When consumers use Smart Cards online and in stores, they can receive 10 percent off a
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purchase of $500 or more. Vendors may partner with Smart Card on special offers. Consumers
will be able to access Smart Card accounts via Target’s Web sites.
Launched September 2001, Target’s Smart Card is now the 11th largest VISA card in the United
States and is the country’s first Smart Card, says the executive. The cards are embedded with a
special chip that allows both purchasing and consumer data collection. Target must identify,
acquire and retain guests while enabling personalized communication.
The Smart Card is becoming part of three-year-old GRM. This company-wide project pulls
together all databases, allowing Target to make business decisions and investments based on
correlations found across various consumer behaviors. While Target is “already running data,”
it will be another two or three years before GRM is implemented into the total store execution
plan.
The obvious goal is to drive sales frequency by improving Target’s ability to deliver shopper
preferences to vendors. GRM could impact store layouts and the designated customer targets of
new products.
IV. Case
RadioShack
HBS Case: 500-081 TN: 500-106
Teaching Perspectives
The case traces the evolution of RadioShack through each of its strategic transformations—
from a connector of things (via its parts and accessories business), to a connector of people
(through its telecommunications business), and to a connector of places (with its forthcoming
Internet strategy). It also provides insight into the arrival of Len Roberts and the subsequent
turnaround of the operations. Further, it describes the unique sales process at play at the
RadioShack stores and its importance in the company’s ability to execute its Internet strategy.
Students gain a perspective into the strategic evolution at RadioShack and the progress of the
company into a “service model” under Len Roberts’ leadership. They must assess the strategy
and RadioShack’s ability to implement it. Further, the case is structured for students to analyze
the rollout of the installation business and its positioning as a profit center or a break-even
operation used to drive the Internet strategy.
In the winter of 1999, RadioShack’s CEO Len Roberts, provided the outline of a new, five-year
strategy for the ubiquitous electronics retailer that had 7,000 outlets in the United States. This
new strategy was aimed at providing Internet service for consumers. It offered an integrated
approach whereby RadioShack customers could come into a store and select the way that the
Internet would come into their homes, choose an Internet service provider (ISP), and have the
entire package installed by trained RadioShack personnel. Roberts believed that this integrated
approach was critical in the emerging Internet space.
At present, customers didn’t know whether they needed one of the new broadband technologies
that allowed faster connection speeds or traditional telephone modem connections. They also
didn’t have insight into how to choose among the myriad of ISPs. Then they faced yet another
obstacle in getting the whole package up and running. Coming on board in 1993 Len Roberts
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had successfully re-asserted RadioShack as a leading electronics retailer using the mantra of
“You’ve Got Questions, We’ve Got Answers” with the purpose of “demystifying terminology”
for the mass market. He had found great success in demystifying the wireless telephone market
and believed that it was now time to demystify the Internet. This was especially important with
the oncoming of the “everyday web.” That is web users were expected to explode from 20
million to 100 million households by 2005.
RadioShack had already taken preliminary steps to make its strategy a reality. Recognizing a
lack of experience in installation, RadioShack had purchased Amerilink an installation
company with offices in 23 U.S. cities. Also aware that it would need even more coverage,
RadioShack had also considered several alternatives regarding the installation service. One
involved the full ownership of the service business (by leasing vans and hiring employees),
while the other model was based on the creation of a franchised installation business.
Additionally, RadioShack had signed an agreement with Microsoft for the provision of Internet
service. However, as indicated in the case, Microsoft later quickly announced a succession of
ISP deals with other retailers. On the broadband front, RadioShack had made an investment in
Northpoint, a leading DSL provider, but had yet to sign an agreement with a cable modem
provider.
Analysis Perspectives
About 95 percent of U.S. consumers live within five minutes of a RadioShack store.
Approximately 1 million customers walk through its doors every day—creating a unique retail
electronic opportunity.
The company earns 12 percent gross margins, a strong return in the cutthroat electronics
retailing environment. This high profitability is achieved mainly through parts and service,
both of which fetch a high gross margin. But the consumer is willing to pay the price because
“availability” not “price” is the key buying criteria. RadioShack’s market coverage draws the
customer in the door and its unique sales process closes the sale.
The company’s reputation has been built on its ability to sell and have in stock a variety of
parts and accessories needed to connect electronics equipment. High margin, low turnover,
parts and accessories have historically accounted for 30 percent of sales and earned 65 percent
gross profit. But having the goods in stock is only one component of the sale. RadioShack also
has a well-trained, knowledgeable, and trusted sales force. The consumer comes into the
RadioShack store expecting the sales associate to understand what needs to be connected and
the parts that are needed to do it. At this point, RadioShack’s sales magic begins to kick in. The
first is product training. Sales associates are trained and certified in specific product areas, so
that they know what their customers need. This is a key component of demystifying technology
for the customer and building trust.
RadioShack is exceptionally effective in helping the customer meet his or her current need,
using the visit as an opportunity to sell the customer an additional product or service, and then
using the visit as an opportunity to tell the customer about a new RadioShack offering.
RadioShack is able to increase the dollar value of the sale by “accessorizing” the sale (selling
not only the batteries, but also headphones, and potentially a new Walkman) and/or by selling
another item such as a wireless telephone. As stated in the case, about half of the customers
that bought a cellular telephone did not walk into a RadioShack store with the intention to buy.
This also means that RadioShack’s sales associates are used to spending time with customers
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who may want to buy a $7 connector cable. They are more than willing to spend even more
time with a customer who might be sold on even higher priced and higher absolute margin
products.
Questions
1. Assess RadioShack’s five-year strategy of “Connecting Places.”
2. What are the key success factors in making the strategy work?
installation concept?
4. What is your assessment of the broadband strategy? Will it succeed? If not, what
else should Radio Shack do?
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