Sales Channels in Retail Industry - Case Study Example

TABLE OF CONTENTS 0 Introduction 2.0 The companies 2 Wal-Mart stores 2.2 Carrefour group 3.0 Product sector 4.0 Marketing and Service Strategies 5.0 Pricing strategy 5.1 Every-day-low prices 5.2 Discount-everyday-prices 6.0 Human resource management 7.0 Technology 8.0 Store designs 9.0 Expansion strategies 10.0 Conclusion Bibliography 1.0 Introduction The discount retail industry emerged in the United States in the mid-1950s. Americans, accustomed to the supermarket concept and better informed, took the concept of self-service to heart. The basic discount concept relied on charging gross margins that were 10 to 15 percent lower than those found in department stores for general merchandise were. The growth of the industry was nothing short of spectacular. In the United States, the growth into the 1970s cranked ahead. Such opportunity attracted many players at the local, regional and national level. Throughout the 1970s, the industry continued to grow. As the competitive landscape filled up, the industry players were under intensifying pressure to push costs down, increase store-selling areas and widen their market coverage. The objective of this paper is to compare and contrast sales channels in the same product sector considering various strategies used in the buying assortment of these retailers. Store design and how it supports buying and merchandising strategies of the retailers will also be looked at. The companies in question are Wal-Mart and Carrefour, both retailers. To begin with, let us take a closer look at these companies' profiles. 2.0 The Companies 2.1 Wal-Mart Wal-Mart was founded in 1962 by Sam Walton and his brother James "Bud" Walton. They first started with a single discount store in Rogers, Arkansas. The Discount store consisted of servicing small and middle-sized towns at prices equal to or lower than prices in nearby cities. The company has registered a unique success story in the history of retail industry credited to the leadership of Sam Walton. The company internationally came off the ground by opening its first store abroad in Mexico City in 1991. The company then extended its international presence to Puerto Rico, Canada, China, Brazil, Argentina, South Korea and Germany and today operates more than 600 stores in international arena. 2.2 Carrefour The Fournier and Defforey families created the Carrefour Company in 1959. They opened the first supermarket in 1960 in Annecy, France. Promodes was created in 1961 by the group and the first supermarket 'Promodes' was opened in the year 1962. A new concept of the hypermarket was invented in 1963 by the Carrefour group. The first hypermarket was opened in Sainte Genevive des Bois. In 1969 Carrefour opened a store abroad in Belgium. With a move into Belgium in 1969, Carrefour began its internationalization. tThe group Promodes adopted many banner names in the 1970s such as Shopi and Continent. We can say therefore that Carrefour was an important brand with the aim of growing and expanding its operations into new countries. By the end of 1971, the company was operating 16 wholly owned stores, had an equity interest in five stores operated as joint ventures, and had franchise agreements with seven additional stores. The idea of the hypermarket stressed mass sales, low delivery cost and discount everyday to achieve high rotation. by1999; it had 681 hypermarkets, 2,259 supermarkets, 3,124 hard discount stores, and 1,921 convenience stores and other formats selling under its banner. The stores were located mostly in France but also throughout Europe, Asia, and Latin America. Carrefour internationalized much faster than Wal-Mart. 3.0 Product Sector The Carrefour Group mostly deals with consumer goods and services. These include convenience goods such as food products, which are sold by all formats of retail stores, and shopping goods and services (household appliances, electronic devices) which are sold by hypermarkets only. For Wal-Mart, the major merchandise lines include house wares, consumer electronics and groceries or food products. The two therefore deal with consumer goods and services hence are competitors as the products are similar. 4.0 Marketing and Service Strategies Wal-Mart differentiated business departments to thereby serving different market segments. Wal-Mart's success is built on the practice of a lowest price everyday strategy that significantly reduces searching cost. Wal-Mart could reduce expenses on advertisements and promotions and also increase turnovers of products as it offered high quality products hence winning the reputation of a high-valued company and loyalty of customers. The belief by Wal-Mart that customers always come first also comes in handy. All employees therefore follow three management philosophies, that is, respect everyone, serve customer and search for perfection. They fully carry out the practices of 8 teeth smile, ten-foot rule, and sundown rule. All these practices have become the benchmark of the retailing industry (Wright 96). Carrefour on the other hand adopted a two-stage philosophy to achieve stable growth. The first stage enables branch stores to operate smoothly as fast as possible and to maintain high turnover. Carrefour decides to set up a new store after the investigations of location, store space and neighboring purchasing power. For example, it built a whole-selling or green store in industrial region and a general retailing or blue store in residential ones in Taiwan. By adopting this strategy, Carrefour could capture both big and small accounts in one shot and then grow much faster than its rivals. At the second stage, it focuses on customers, personnel training and market channels. It gradually enhances service quality, product innovation and emphasizes personnel cultivation. It further adopted a strategic alliance to develop private label products to meet the needs of one-stop shopping. At the same time, utilizing the system of commerce automation to centralize the purchasing matters of all stores, it could coordinate orderings, stock management and data processing for better control and decision-making. In a summary, Carrefour's key success factors are: one-stop shopping, extremely low prices, full range of choices, self-service, free parking. To Carrefour, price does not equal to competitive advantage but an essential means to survival. To maintain lowest price reputation, Carrefour keeps reminding customers to refund if they buy more expensive in order to comfort their purchases. To meet the nature of impulse purchase of customers Carrefour chooses mass-selling, low delivery cost and promotion to attract and retain their buying. On the other hand, Carrefour also follows flexible pricing to reflect the differences of local markets. Provision of wider shopping space and parking lot makes customers buying more convenient. In addition, it delegates each stores, as profit centers, to decide what to purchase, pricing and promotion strategies and constantly stresses discount everyday that is very different from that of Wal-Mart. 5.0 Pricing Strategy In the narrowest sense, price is the amount of money charged for a product or service. More broadly, price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. 5.1 Everyday-Low-Prices High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. Wal-Mart practically defined this concept. To offer everyday low prices, a company must first have everyday low costs. Sam Walton's obsession with keeping prices below competitors led him to check his and the competition's stores thoroughly, counting the number of cars in the car park and going so far as to taking a tape measure and evaluating shelf space. He looked out for good ideas and was not afraid to copy them. This attitude assured that "Everyday-low-prices" was a genuine strategy and not just a slogan. Wal-Mart offered brand name products at prices consistently lower than those found at department or specialty stores. The everyday-low-price strategy implied that there were few promotions. Although other major competitors, including Carrefour, typically ran advertised circulars per year-spending 2.1 percent of discount store sales on advertising-Wal-Mart produced only spent 1.5 percent of sales. Because retail competition was mainly local, the everyday-low-price guarantee required that each store manager set his/her own prices. They also were responsible for product offerings and shelf-space allocation decisions, all of which were based on market specific inventory and sales data supplied by advanced information systems. 5.2 Discount-Everyday-Prices Carrefour's overall pricing was heavily promotional, with frequent sales and special discounts supported by weekly circulars, its private label offering a fixed price all year round. The group implemented a discount everyday strategy unlike Wal-Mart. To maintain lowest price reputation, Carrefour kept reminding customers to refund if they buy more expensive in order to comfort their purchases. The objective of the group was to reduce prices in all formats of stores. In 2005, the clearly stated objective of each hypermarket was to be the least expensive store within its market radius. This is a competition-based pricing: their strategy is based on what other competitors are doing (including hard discounters and informal traders), and the group tries to set the price below the competitors'. However, they also seem to have a demand-based (or target) pricing as they constantly try to reduce prices to meet or exceed customers expectations, even though they are already under their competitors' price. The objective of this price reduction strategy is to attract more people to the stores, thus gaining market share. The objective can be explained as a virtuous circle: the more they sell, the more economies of scale they can do, the more they can lower prices thus attracting more customers. 6.0 Human resource Management Wal-Mart applied five strategic measures in human resource management. First, they embraced education and training of their incoming employees to nurture their skills and gather experience. They had an institute that offered courses and they also practiced job rotation so that their employees could be all round. The second measure was motivation and challenging the employees to come up with new ideas that they could apply for customer satisfaction. This also helped the employees garner leadership skills and counter any difficulty they experience in the workplace. Regular announcement of performance is also a very important measure hence the third. Wal-Mart ensured that each store announced its profits, amount of purchases, sales and discounts offered and received. There was a scheme of profit sharing introduced by Wal-Mart for its workers especially those in service for more that one year. Finally, Wal-Mart employees were allowed to buy stocks at the company at a lower price than the market price and therefore as part of the owners of the company were motivated to work extra harder. According to Carrefour, the definition of Human Resource Management is that it aims to develop the human capital capacity in a firm. This leads to progress, adaptation, change, evolution further development of knowledge by learning. Human Resource Management also creates links between the organization and its employees. The link of Human Resource Management is constant because usually is a question of managing behaviors of employees, which are particularly unpredictable. The role of human resource Director in Carrefour is therefore to anticipate, manage and go with change even though unexpected facts are part of this management. Motivation is therefore very vital as motivated employees satisfy customers more with productive services performance. 7.0 Technology The development of technologies has been very important for the development of Carrefour. The main technology that has been useful is the computer, and then the Internet. The Internet, for example, allowed Carrefour to develop new kinds of activities like the online supermarket. But the most important point with the Internet was the creation of a B2B extranet. Thanks to this portal, suppliers can manage their relations with Carrefour group more easily and more efficiently. The development of computers has been very useful for logistics reasons too. Faster computers can generate more accurate delivery schedules, for example, and thus reduce significantly the costs. The use of servers has also allowed developing giant databases of customers. Carrefour keeps information for each customer that has a loyalty card, and whichever shop you go to you are known and can use the advantages of your loyalty card. Finally, Carrefour created a website for recruitment purposes, so that people can easily access to work offers and have information about them. Wal-Mart operated a satellite system that enabled communication and electronic scanning throughout the store, supplier and distributor networks. It allowed for requests for merchandise at the point of sale to be transmitted to the headquarters or to a supplier's distribution centers instantly. For the most part, distribution was centralized in Wal-Mart's distribution centers and a system known as cross-docking and it was used to reduce handling and inventory costs. In 1993, a study was carried out which estimated Wal-Mart's inbound logistic costs at 3.7 percent of store sales compared to 4.8 percent for its direct US competitors. Wal-Mart's truck fleet delivered to stores 24 hours a day and picked up merchandise from suppliers on return trips running at a sixty percent capacity on backhaul (Wal-Mart Annual reports). Technological superiority was seen as a competitive advantage by Wal-Mart. Technology was used not only in setting price and product offerings, but also in areas such as communication, distribution and the control of supplier relations. Wal-Mart operated a satellite system that enabled communication and electronic scanning throughout the store, supplier and distributor networks. The satellite system allowed requests for merchandise at the point of sale to be transmitted to the headquarters or to a supplier's distribution centers instantly. To even better manage the supply chain, Wal-Mart's relation with its suppliers was enhanced by an Electronic Data Interchange (EDI) system. By the late 1980s key suppliers were already directly managing Wal-Mart's merchandise inventory. All Wal-Mart's suppliers received a planning packet with information about the specific department with which the vendor was dealing as well as Wal-Mart's expectations from the relationship. Vendor negotiations were centralized and done in undecorated standard interviewing rooms. Wal-Mart restricted its suppliers to companies who limited the workweek to sixty hours, provided safe working conditions and did not employ child labor. No single supplier was expected to account for more than three percent of the company's purchases. 8.0 Store Designs The Carrefour Group designed their stores so that they meet customers need. This includes having the right store format, helpful services, the appropriate product mix, and a reliable private-label brand. Developing new store formats The group aims at attracting the greatest possible number of people to their retail stores. As different market segments have different needs, there is need to have different formats of retail shops to fulfill these needs. For instance, elderly person often do not have a car and live alone, so they need a store near their house, that is, they need district shops. However, large families with children are looking for hypermarkets where they can buy goods at a cheap price, just once a week. In 1963, Carrefour opened the first ever-built hypermarket in Sainte-Genevieve-des-Bois in France. The concept was to build a retail facility which carries under one roof both groceries and general merchandise. Thus, a consumer can normally satisfy all of his or her routine weekly shopping needs in one trip to the hypermarket. The Carrefour Group has recently tried three new store formats. They have renamed supermarkets into "Carrefour Express" and changed the offer of products. They have used the well known Carrefour trademark (the logo and the brand name), just adding the word "Express" to show that it is not the same as the traditional Carrefour. It enables customers to know they can find Carrefour brand products there at hypermarket prices. Carrefour had been an innovator in store design, softening the look of its warehouse-size buildings by installing wood floors and non-fluorescent lights in some departments and putting service counters in the food department, where shoppers can get meat, cheese, and bread sliced to order. This transformation was highly successful with an increase in sales since the change of trade name. 9.0 Expansion Strategies Throughout the late 60s and early 70s, Carrefour's rapid growth was made possible by the fact that the firm had been able to get two new construction permits per year. As more firms entered the discount retail market, the competition for permits became fiercer as many firms and individuals fought for authorization to build in attractive locations. In the late 60s, in order to achieve a more rapid pace of expansion than the firm could achieve if it were limited to two new stores per year. Carrefour offered to share its retailing know-how, trademark, and consumer goodwill with potential partners both in France and elsewhere in Europe; either in exchange for an ownership interest in stores under construction or franchise fees. Carrefour's ownership interests in joint ventures ranged from 10 to 80 percent. Franchisees were required to use a control system similar to Carrefour's and to submit their forecasts and results to Carrefour's controller. Wal-Mart had a unique expansion strategy. Sam Walton had served in the army, and had employed military strategy of winning post by post and strengthening it before moving to another post. He applied same strategy in the retail industry. Instead of expanding to the main metropolitan cities to quickly gain national coverage, Wal-Mart has been expanding itself to adjoining territory (within 200 miles of the existing stores) and covering the small towns by opening up stores before penetrating the next big territory. This concept kept marketing and advertising costs significantly low compared to its competitors'. The hallmark of Walton's strategy, however, was to become "Best Cost Provider" selling at everyday low prices. This could be realized by the continuous implementation of the latest available information technology and distribution control systems at a time. The Retail Link computer system is one of the secrets of Wal-Mart's success. Furthermore, due to its unique geographic expansion strategy, the company is able to operate its own distribution centers with a truck fleet to supply its stores. 10.0 Conclusion Since Wal-Mart reached its objective of being the number one retailer in the U.S. in early 1991, it had been shifting its focus on becoming a global chain, starting to expand into the international market. This expansion has proven to be overwhelmingly successful, and therefore Wal-Mart in the long run can maintain this strategy and ensure the continuous growth of its businesses. As in many other businesses, it is a crucial point for the Carrefour group to have learnt about their customers and to do everything they can to satisfy them. Thus Carrefour has defined what builds up a positive experience for the customer apart from the marketing mix, you can see that many other factors contribute to the customer's decision-making as seen earlier in this paper. Bibliography Carrefour Annual Reports viewed on 8th April 2008 at www.carrefour.com Nickel W., McHugh & McHugh (1993), Understanding Business. Irwin: London Seth, A. and Randall, G. (1999). The Grocers: The Rise and Rise of the Supermarket chains. Kogan Page Ltd: Europe Stern C. and Stalk G. (1998). Perspectives on strategy from the Boston Consulting group. J. Wiley: London Wal-Mart Annual reports viewed on 8th April 2008 at www.walmartstores.com Wal-Mart Stores (2008). Wal-Mart stores, inc. company profile viewed at http://mba.tuck.dartmouth.edu/pdf/2002-2-0013.pdf Wright P., Kroll M. and Parnell J. (1996) Strategic Management: Concepts and cases. Prentice Hall: Englewood cliffs. Read More