Store retailing is a business that can easily be started. But with the rise of competition and many other risks in this industry, a store retailer must revisit and identify each business factor to have a competitive edge.
There are two interconnected elements to have a profitable retail business. The first one is related to marketing while the second one looks at the combination of operations and finance.
For the first element in marketing, there are 5 positioning options. Positioning is about being relevant and unique. You cannot just be unique without being relevant. You have to find your relevance first before being unique. And relevance comes from satisfying unmet needs. It is therefore important for a store retailer to understand the unmet needs of their customers. Who is the target market? And what is the unique set of unmet needs of this target market are you trying to satisfy?
Convenience stores like 7-eleven have site selection as one of their key factors for success. Because they sell on the basis of convenience, therefore they need to be located in the center of any particular trading area.
If the retailer can purchase in volume or have legitimate ways to create lower cost of goods, then the retailer can position itself as a price leader. SM, for instance, has a lot of stores in the Philippines to enable them to have a high bargaining power. Their total cost is lower versus most other retailers. They can position themselves as a price leader offering total lower cost.
Rustan’s in the Philippines has a prestige-image brand. If you get a gift from a person wrapped in a Rustan’s gift wrapper, it makes you feel good or feel you are an important person, that’s why get a Rustan’s gift, complete with gift wrapping.
Shopwise, a hypermarket in the Philippines, created an elite lane for their volume shoppers. Traditionally many supermarkets and hypermarkets would have express lane for people purchasing 7-8 pieces or less. But Shopwise discovered a new truth and that it is the volume customer who must be treated extra special. So just like the business class of airlines with a special lane, the volume customers of Shopwise enjoy the elite lane with much shorter line and exclusive, specialized service and promos.
In the U.S. you have stores like the American Girl which provide a total experience within the store. Beyond just sales of dolls and accessories, they also offer customized hairstyling service (yes, for the dolls), tea-time service where the dolls have their own “high chair” and even musical shows featuring the stories behind the historical dolls.
I also mentioned that there are two different inter-related elements. One is marketing. The other is about operating finance, referred to as the Mansmith 5S’s of retail profit.
Making money by way of good gross margin or taking advantage of deals to expand margins.
Making money via velocity or quickness of turnover. When a retailer has logistical advantage with fast replenishment, they can have a better trading terms like volume discounts or rebates when ‘speed’ enables them to buy or sell in volume.
Saving money largely deals with the the 3 Ws in store retailing. You can save by avoiding or reducing wastage or shrinkage, by looking at productivity so that you can have more efficient wage or wages, including having suppliers taking care of some of the expenses for manpower, or you can have better inventory control and product specs so you actually need lesser warehouse space.
Making money by leveraging limited display space by way of listing fee, or by charging rental or product highlight fee.
Making money by getting supplier’s funds for business development like store opening support or promo support.
While all of these 5 S’s are potential profit areas, it doesn’t mean that all the retailers will get them. The bigger the chain, the more likelihood that they can enjoy all of the above benefits. So it’s important for retailers to think “how can I maximize my profitability by maximizing the value creation to customers making both the customers and stockholders happy at the same time?”