Strategic Planning in Retailing

  • Post last modified:13 April 2022
  • Reading time:23 mins read

“Strategy” means several things to several people at different points of time. It is fashionable nowadays to use the word ‘strategy’. Hence, people talk about defence strategies, business strategies, strategies for games (be it cricket or chess), National Strategies, Global Strategies and many more strategies.

The retailing strategy outlines the mission and vision of a retail organization. It is a systematic plan that provides the retailers the overall framework for dealing with competitors as well as technological and global movements. In the past traditional retailers mainly reacted to changes in the business environment, but with increasing business complexities, this is no longer valid.

The reason for this is, competition in all the disciplines of retailing is increasing and changes in the consumer’s tastes, needs, wants, technological environment and other external environmental variables are taking place very fast.

Long term strategies and continuous examination of strengths, weaknesses, opportunities and threats (SWOT analysis) is required to ensure that the growth, and opportunities are not missed and action is taken at the right time to combat potential threats in the prevailing business environment.


Retail Market Strategy

A company’s strategy provides a central purpose and direction to the activities of the organization to the people who work in it, and often to the world outside. Using suitable strategies and communicating them to all important groups inside and outside the corporate firm would gain cooperation from all corners.

Strategy if defined clearly by the top management and accomplished well, provides the purpose and focus for all other activities and starts the organization on the road to successful operation. ‘Every long journey starts with taking the first step’, says a proverb. Obviously, the formulation of a strategy is only the beginning but the beginning is the most significant point in any enterprise.


Levels of Strategy for Retail Organizations

An organization’s strategy includes where it wants to go and how it intends to get there. This definition applies both to the overall strategy of an organization and to the strategies of its major sub-units. The implications of strategy at different levels can be distinguished. Analytically, there are three levels of strategy:

Corporate Level Strategy

At the corporate level, strategic decisions relate to organization’s wide policies and are most useful in the case of multidivisional companies or firms having wide-ranging business interests. The nature of strategic decisions at the corporate level tend to be value oriented, conceptual and less concrete than decision at the business or functional level.

There is also greater risk, cost and profit potential as well as greater need for flexibility associated with corporate level strategic activities. These are natural outcomes of the futuristic, innovative and pervasive character of corporate level strategy. Major financial policy decision involving acquisition, diversification and structural redesigning belong to the category of corporate strategy.

Business Unit Strategy

At the business unit level (retail format level) decision-makers are primarily concerned with the immediate industry or product—market issue, and with policies bearing on the integration of the functional units.

Retail business-level strategic decisions translate the general statements of direction and intent generated at the corporate level into concrete functional objectives and strategies for divisions or strategic business units (operating division of a firm which serves a distinct product/market segment or a well-defined set of customers or a geographical area).

Strategic decisions at the business level should include policies involving new product development, marketing mix, research and development, personnel etc.

Functional Level Strategy

Functional strategic level strategy involves decision making at the operational level with respect to specific functional areas-production, marketing, personnel, finance etc. Decisions at the functional level are often described as ‘tactical’ decisions.

These decisions are necessarily guided by overall strategic considerations and must be consistent with the framework of business strategy.


Strategic Retail Planning Process

This text developing and applying retail strategy, retailers are required to follow a step-by-step procedure or planning process. The planning process involves the present stage of business, the formulation, lists of available strategic options, and the implementation of the selected strategies.

Considering the importance of strategic decisions for the future success of the business, a systematic approach is essential. The strategic planning process, after considering the HR potential and the unique selling proposition (USP) of a particular store takes proper shape.

Strategic retail planning process divided into the following four steps:

Deciding the Store’s Mission and Objectives

The retail strategic planning process starts with the identification of a store’s mission for its existence, and hence the scope of the retail store. The mission of a store is identifying the goods and services that will be offered to customers. It also deals with the issue of how the resources and capabilities of a store will be used to provide satisfaction to customers and how the store can compete in the target market vis-à-vis its competitors.

The mission also involves the way of the store’s functioning. How a store will work and accomplish its day-to-day operations. What is the emergency planning? All these questions are answered in the store’s mission statement.

For Example: Big Bazaar, they have philosophy of customer satisfaction through ‘manufacturing retailing’. This reflect not only the way it tends to treat its customers but discuss secret of its competitive advantage, i.e. the profit saved from absence of intermediaries like agents and brokers, the profit saved is thus, distributed to the customers by way of low price items.

Once the organization mission has been determined, its objectives the desired future positions that it wishes to reach, should be identified. A store’s objectives are defined as ends that the store seeks to achieve by its USP and operations.

The store’ s objectives may be classified into two parts:

  • External store objectives: are those objectives that define the impact of store on its environment. Example: To develop high degree of customer confidence by providing quality goods at affordable price.

  • Internal store objectives: Are those objectives that define how much is expected to be achieved with the available resources. Example: To raise the store turnover by 20% in the coming year.

Situational Analysis

The objective of doing store’s situation analysis is to determine where the store is at present and to forecast where it will be if the formulated strategies are implemented. The difference between current and future position is known as planning. And the objective of conducting store’s situation analysis, normally study in the context of external environment and internal environment.

External Analysis

The purpose of examining the store’s external environment is to study the opportunities and threats in the retailing environment. The external analysis studies factors that affect the macro-environment of the retailing industry and the task environment. Under external analysis retailer studies these parameters:

  • Economic environment of retailing
  • Political environment of retailing
  • Socio-cultural environment of retailing
  • Technological environment of retailing
  • International environment of retailing

Economic Environment of Retailing

  • Inflation
  • Employment
  • Disposal income
  • Business cycle
  • Energy availability and cost
  • Others

Political/Legal Environment of Retailing

  • Monopolies legislation
  • Environmental protection laws
  • Taxation policy
  • Employment laws
  • Government policy
  • Legislation
  • Others

Socio-Cultural Environment of Retailing

  • Demographics
  • Distribution of income
  • Social mobility
  • Lifestyle changes
  • Consumerism
  • Levels of education
  • Others

Technological Environment of Retailing

  • New discoveries and innovations
  • Speed of technology transfer
  • Rates of obsolescence
  • Internet
  • Information technology
  • Others

International Environment of Retailing

  • Growth
  • Opportunities
  • Others

Internal Analysis

The objective of studying the internal environment of its own store is to identify the store’s capabilities and weakness. The store will try to increase its capabilities and overcome the weaknesses that deter the business profit.

While doing the internal analysis, the store examines the quality and quantity of its available resources and critically analyzes how effectively these resources are used. These resources for the purpose of examination are normally grouped into human resources, financial resources, physical resources and intangible resources.

The questions may arise under these resources:

Human Resource

  • Is the present strength of employees at various levels sufficient for future action?
  • Are the employees trained and capable to perform the tasks assigned to them?
  • Are the employees loyal to the store?
  • Are the employees punctual and regular?
  • Are the employees skilled matched to their assigned tasks?

Financial Resource

  • What is the total cash flow from the store’s present activities?
  • What is the ability of the retail store to collect money at the time of requirement/ emergency?
  • How effective and stable are the financial policies?
  • What is the ratio between fixed and current assets?
  • What are the contingency plans in case of negative cash flow?

Physical Resources

  • What is the contribution of fixed assets?
  • What is the position of abandoned/unused assets?
  • How effective and updated are the store’s information

Intangible Resources

  • What are the present capabilities of the company’s management?
  • How effective is the R&D cell?
  • How good is the competitor’s intelligence system?
  • How effective are the store’s loyalty programs?
  • What is the capability of a retail store manager?
  • Are customers loyal towards the company’s products?

Retail Strategy

It is a clear and definite plan outlined by the retailer to tap the market. A plan to build a long-term relationship with the consumers. Process of strategy formulation in retail is the same as that for any other industry. It starts with the retailer defining or stating the mission for the organization.

Mission

The mission is at the core of the existence of the retailer. Other aspects of the strategy may change over a period of time or vary for different markets.

Functions of Retail Strategy

Retail strategy define mission or purpose

A Mission statement is a long term purpose of the organization. It describes what the retailer wishes to accomplish in the markets in which he chooses to operate.

Retailers mission statement would normally highlight the following:

  • The products and services that will be offered.
  • The customers who will be served.
  • The geographic areas that the organization chooses to operate in the manner in which the firm intends to compete.

Retail strategy conduct a situation analysis

Once the retail mission is defined,

  • the retail organization needs to look inwards;
  • Understand what its strengths and weaknesses are;
  • Look outwards to analyze its opportunities and threats;
  • Situation analysis helps the retailer determine his position and his strengths and weaknesses;
  • Helps formulate a clear picture of the advantages and opportunities which can be exploited;
  • The weaknesses need to be worked upon. This forms the basis or the core element of any strategy.

Retail strategy identify options/strategic alternatives

After determining the strengths and weaknesses vis-à-vis one environment retailer needs to consider various alternatives available to tap a particular market. Igor Ansoff presented a matrix which looked at growth opportunities. He focused on firm’s present and potential products in the existing and new markets.

Ansoff’s matrix also helps to understand the options available to a retailer. The alternatives available to a retailer are: Market Penetration, Market Development, Retail Format Development and Diversification.

Retail strategy set objectives

Translation of mission statement into operational terms Indicate Results to be achieved. Give direction to and set standards for the measurement of performance. Management sets both long term and short-term objectives.

One or two year time frames for achieving specific targets are short-term objectives. Long term objectives are less specific and reflect the strategic dimension of the firm.

Two important focus areas of retailers are Market Performance and Financial Performance. Objectives are set keeping these focus areas in mind Sales volume targets. Market hare targets Profitability targets Liquidity targets Returns on investment targets.


Retail strategy obtain and allocate resources needed to compete Resources needed by a retailer

First, Human Resource (HR) plan must be consistent with overall strategy of the organization.HR management focuses on issues such as recruiting, selecting, training, compensating, and motivating personnel.

These activities must be managed effectively and efficiently. Second, Financial Resources takes care of the monetary aspects of business shop rent, salaries and payments for merchandise.

Retail strategy develop the strategic plan

At this stage, strategy is determined through which retailer will achieve objectives. The retailer determines and defines his target market. The retailer finalizes the retail mix that will serve the audience. Target Market – that segment of consumer market that the retail organization decides to serve. No definite process of deciding and selecting the target market.

Most retailers look at the entire market in terms of both size and consumer segments to which it might appeal. From these segments, he identifies smaller number of segments that appear promising. These become possible targets.

Variables like growth potential, investment needed to compete, the strength of competition, etc. are evaluated. This enables the retailer to arrive at the best alternative that is most compatible with the organizations resources and skills.

Retail strategy implement the strategy

Implementation is the key to success of any strategy. Effective implementation of the retailers desired positioning requires. Every aspect of stores to be focused on the target market. Merchandising must be single-minded.

Displays must appeal to target market. Advertising must talk to the target market. Personnel must have empathy for the target market. Customer service must be designed with the target customer in mind.

Evaluate and Control

After implementation, the management needs feedback and should focus on Performance Effectiveness of long term strategy by periodic evaluation. Ensuring that the plans do not degenerate into fragmented adhoc efforts. Ensuring that all efforts are in harmony with the overall competitive strategy of business.

Management can also use the process to decide on. Any future policy change. Modifications if any, in the plan, to ensure that the combination of the retailing mix variables support the firms strategy.

Strategy Implementation and Control

It is concerned with the designing and management of retail system to achieve the best possible combination of human, financial, physical and service resources of a retail store; to achieve the formulated objectives, without timely and effective implementation also requires scheduling and coordination of various retail activities.

Further, the spirit of teamwork is an essential part for the success of strategy implementation. If the retail store’s strategies are competitive, marketing efforts are as per demand, but the sales promotion employees are not taking it seriously or are ineffective, the result will not be up to the mark.

The implementation of new retailing strategies sometimes require changes in the way of functioning and duties that can lead to resistance from employees. Therefore, stores should take positive steps to reduce this resistance to change and to convince the employees that it in the long term will be beneficial for both the store and the employees.

Strategy control deals in three basic concepts:

  1. Inspection
  2. Detection
  3. Correction

It means after implementing the retail strategies, a retailer should assess how effectively the strategies are being implemented, how far the strategic objectives are being achieved and what has been left to be achieved in the store’s objectives list.

Therefore, retailers inspect the implemented strategies from time to time and detect any fault in the implementation of various retail elements. If any deficiency is found during the inspection process that has to be corrected with immediate effect without any further loss to the store.

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