Discount and Variety Retail Industry Analysis

1. Discount and Variety Retail Industry Analysis Whitney Horton Ashley Burnett Shawn Buck Jennifer Shotts Sam Snelling Kelly Riester Mickea Smith

2. Overview Industry Definition Competitor Analysis Industry Structure Industry Environment Industry Evolution Conclusion

3. Discount and Variety Retail • $130 billion in annual revenue • Consists of: • Merchandise stores • Discount department stores • Warehouse clubs • Supercenters

4. Products • NAICS definition of warehouse clubs and supercenters: • Retailers in a general line of groceries in combination with general lines of new merchandise such as apparel, furniture, and appliances • NAICS definition of all other general merchandise stores: • retailers in general lines of new merchandise such as apparel, auto parts, dry goods, hardware, groceries, houseware or home furnishings, and other lines in limited amounts with none of the lines predominating

5. Customers • Lower to Upper Middle class • Target • Average income of $63,000 • 80% of customers have attended college • 48% have completed college • Wal-Mart • Sees 100 million customers on a weekly basis • Average income is below national average • 1 in 5 customers do not have bank accounts

6. Geography 37,000 retailers in the United States Wal-Mart operates 3,600 stores Target operates1,600 stores K Mart operates 1,400 stores Located in both rural and urban areas

7. Stages in the Product Distribution Pipeline • Final products are sent to strategically placed regional distribution centers. • The goal is to service as many stores possible in a timely manner • Wal-Mart • 40 distribution centers • Serve 75-100 stores in 250 mile radius • Service a store within 24 hours

8. Know Companies in the industry

9. Wal-Mart Opened its first store by Sam Walton in 1962 in Rogers, Arkansas. Sam Walton portrays qualities of a level 5 leader. He was concerned with the company first then himself as a CEO. Wal-Mart entered into China as a joint-venture. As we learned in Strategy there are no Wholly owned American companies. In 2005 they have the same amount of domestic and foreign stores.

10. Target Target started out as the Dayton Company in 1911. They opened their first target in 1962 in Roseville, Minnesota. The Dayton corporation changed from that to the Target corporation in 2000.

11. Kmart They have been established for more than 100 years and were known as the S.S. Kresge company before Kmart. They changed from the S.S. Kresge company to Kmart Corporation in 1977.

12. Comparisons of Companies • Positions in the industry • Wal-Mart: They are the leader in the discount retail industry. They are doing better than the other companies in the market. • Target: They are second in the industry which is behind Wal-Mart. They are doing good and had positive sales last year but is still hard to compete with Wal-Mart • Kmart: They are not even in the top 10 as a company. They are just trying to survive and not go bankrupt like they did in 2002. • Competitive scope • Wal-Mart: They are the leader out of all companies with the stores. In Lubbock they have 4 stores. They have 3800 stores throughout the country and just as many in foreign countries. • Target: They only have 2 stores in Lubbock and are only in 48 states. The states that they have not entered into is Hawaii and Vermont • Kmart: They have 1 store in the area.

13. Comparisons of Companies Cont. • Strategic intent • Wal-Mart: They are the number one leader and can be because they offer a variety of products at a low price. Wal-Mart wants to maintain their position in the industry. • Target: They are in the top 5 in the industry. They want to move ahead of their number one competitor which is Wal-Mart. • Kmart: they are not even in the running for the top company in the industry. They are trying to re-vamp their image and become a leader, but is not succeeding at it. • Competitive situation based on economic situation • Wal-Mart: They are getting stronger in a weak economy by having their sales grow 1.7% in January. • Target: They are maintaining their present position. Their sales for the last year were below the industry average. • Kmart: They are struggling to compete with their competitors. Their sales were negative last year compared to competitors.

14. Comparisons of Companies Cont. Strategic Posture: All of these companies operate on a conservative basis. They do not need to expand rapidly because they already have brand recognition and control most of the market.

15. Competitor Analysis • Design Concept: • Target and Wal-Mart are using ERP, WMS, and EDI to help keep track of products that travel through the supply chain. • The industry is focused on products that are convenient and less priced.

16. Competitor Analysis • Physical Resources: • These stores are now offering super centers that offer grocery and general merchandise under the same roof. • Now offering convenient access like off highways. • Newer technology has been able to make the stores faster and more efficient.

17. Competitors analysis • Management: • Target is very big on environmental services. • They have had many awards over the past couple of years • “Americas most admired company” Fortune • “Top 100 employers for Women • And many more.

18. Competitor analysis This is measured by the current ratio which is CA/CL This means for every dollar of equity they have that amount of debt. Finances:

19. Competitor Analysis This is measured by how many times a company turns over their inventory in a year. This graph shows the average rate of interest that they borrow at. Finances

20. Company Compatibility Profile

21. Industry structure • Threat of entry • Large discounters have driven down prices with imports from other countries and slower holiday sales. • Most independent retailers don’t have the margins to compete on price. • They have to be creative in finding ways to get people shopping at their stores. • Offering exclusive gift items & giving more personalized service or hosting event and fund-raisers to lure in more foot traffic.

22. Powerful Suppliers & Buyers • Suppliers • Suppliers are continuously increasing due to the boom in online retailers & large supercenters. • Target stores are able to secure a particular % of certain suppliers business. • Online market gives suppliers additional channels to get their products to consumers but it increases their ability to negotiate for their prices.

23. Powerful Suppliers & Buyers • Buyers • There are usually multiple retailer in one community that offer similar or identical products, buyers are prone to shop at a store based on factors other than loyalty. • This gives the buyers an intermediate level of bargaining power but the suppliers and retailers still control most of the power.

24. Discount Stores: • Industry overview • Annual revenue of $130 billion • Discount department store Industry encompasses 5000 individual retail stores. • Franchise giants like Target, Wal-Mart, Kmart. • Top 8 companies hold 100% of the industry sales.

25. Discount stores: • Competitive Landscape • The competitive landscape of the discount store industry is driven by consumer spending and population growth. • Discount stores are competing with retailers that include grocery, drug, outlet, department, off-price, and specialty stores as well as wholesale clubs, online stores, and catalog retailers.

26. Products, Operations & Technology • Products • Major products that are sold in discount stores include apparel (20% of sales) • Personal Care Products (15%) • Electronics & Groceries ( 7%) • Toys (6%) • Apparel includes women’s, men’s and children’s clothing.

27. Products, Operations & Technology • Operations • Discount department stores inhabit a large portion of the market & require big portions of real estate: the average size is about 100,00 square feet. • Companies like Target, K-mart, & Wal-mart select locations near population centers, other retail centers, or major highways. • Supercenter arrangement averages 180,000 square feet & offers a more wide-ranging merchandise & grocery section.

28. Products, Operations & Technology • Technology • Reduces labor costs and overall operating cost. • These systems include automated distribution centers, point of sale systems (POS), and computerized inventory management systems. • Keeping track of inventory on the floor is done electronically with hand held scanners, bar codes, and radio frequency identification (RFID) tags. • These systems can also be used on a network to connect inventory and sales information across the nation. • Wal-mart has incorporated a satellite communications system to link all its facilities.

29. Economic Factors • Discount and Variety Retailers are now expanding their stores to include a grocery section, and are now calling these stores Super Centers. -Perishable items bring in customers more frequently. -This allows for a “One-stop-shop” • The economic downturn has also affected this Industry. -Consumers are being more careful with their disposible income. -They are spending less on entertainment and focusing more on the essentials. -Total Consumption as of September 2008 was $83,413 billion. -Of the total consumption $1,133.6 billion was spent on food

30. Real Personal Consumption

31. Economic Factors Continued • A major part of the workforce is working in the retail industry -Jobs in retail typically pay less -With non-managerial employees making only up to 87% of median employees in any other industry -The lowest wages are found in clothing and Discount retail stores. -The average amount of hours an employee receives is 28.5 hours.

32. Is the Stimulus Package working? • The retail industry is not necessarily being helped by the stimulus package • People are still being cautious with their money

33. Political Factors Small communities are starting to put a Store Cap on new retail stores entering the market. • These zoning restrictions are to help the “Mom-and-Pop” stores • Discount and Variety stores are affected by this because it means that they may have to deviate from their basic store landscape to meet Cap size limits Discount and Variety retail stores are also trying to help with the cost of medical cost • Now including “retail clinics” that are cheap and fast • Many stores are also offering generic drugs that are priced as low as $4.

34. Social Factors • The Target Market for the Discount and Variety Retail Industry • Women between the ages of 25 to 46 years of age • Households with at least one child • Household Income ranging from $20,000 up to $70,00 • Education is a factor for both the target market and location • For Target Corporation, the average shoppers has attended college and almost half have graduated from College with a bachelor degree • Discount and Variety stores are no longer viewed as being a place for lower income families • The creation of “Cheap Chic” • Popularity of Bargain Shopping

35. Global Trends The Emerging Middle Class -The middle class is estimated to grow from 400 million (in 2000) to 1.5 billion by the year 2030 -developing countries are estimated to make up 93% of the global middle class by 2030. As of 2000 they only made up of 56% of the global middle class Environment Degradation -The diminishing of our natural resources has lead many companies to fulfill their environmental responibilities -K Mart has reduced their energy consumption by over 400 million kWh -Target has been able to reuse and recycle 70% of the material that was previously destined for landfills -Wal-Mart has set a long term goal that one day all their energy will come from renewable sources.

36. Global Trends Continued Information Technology -With the invention of the Internet, e-commerce has become an important part of the discount and variety retail industry. -This has allowed for stores like Wal-Mart to expand to new customers who would otherwise not be able to reach the store International Health Regulations -With importing and exporting being done on a global scale, countries are going to have to work together to sync their standards with our own or we will continue facing these types of problems. - Wal-Mart and other retail stores had to pull billions of toys off their shelf after Lead paint was found in many of these toys.

37. Geographical Factors Walmart: 112 Target: 31 Best buy: 20 Use 3PL and ERP systems for efficiency 3 shifts (24 hours a day)

38. Headquarters

39. Foreign Markets Being that discount/variety retail has two of the largest companies in the world, FDI is a big part of their business. Target India Wal-Mart’s expansion New ideas for the future

40. Competitors • Top three companies within the industry comprise 95% of its sales. • Ease of entry is non-existent on a large scale. • Small firms cannot compete with industry leaders incentive in the market place • Environmental initiatives taken by the industry. • 3 million a week, scholarships, “going green” • “Segmentation of the market is the key to success”- Lee Scott (Wal-Mart)

41. Technological Change • MRP systems reduce human error in inventory levels • Raw Materials: 20% are used by the industry- Bloomberg • Bottom line: increased prices for the consumer

42. Industry Evolution • Why Change? • Companies must predict trends and alter their products and services to fit customer demand • Driving Forces for Change • Social factors • Health concerns • Nutrition • The “Going Green” movement • Fashion trends • Technological advancement • Information Age • Charitable Reputation • Corporate Social Responsibility (CSR)

43. Social Factors • Health Concerns • Medication • Target: ClearRX – a prescription distribution and communication system that offers safe innovations in medication packaging and design, prescription and health information and patient communication • Wal-Mart: created a new $4 generic prescription drug program • Nutrition • Wal-Mart: OneSource nutrition centers

44. Social Factors (cont.) • The ‘Going Green’ movement (examples) • Target: Introduced a gift card that was made from a biodegradable, corn-based bioplastic product • Wal-Mart: In the next seven years, is committed to: • Cutting energy use by 30 percent • Cutting greenhouse-gas emissions by 20 percent • Fashion • A materialistic driver to the discount and variety retail industry • The latest trends are constantly being sought after • Examples: • Target’s “cheap chic” approach allows those with a budget to still be fashionable

45. Technological Advancement • Information Age • When technology advances, opportunities arise • Opportunities made possible because of technology (examples): • Point of sale scanning at checkout • Bar codes • Cash registers • Gift cards • Company Visa cards • Importance: Introduce something too early, and you may flop; introduce something too late, and you may have missed the boat.

46. Charitable Reputation • Corporate Social Responsibility (CSR) • How a company makes a positive impact on society. • Why important? • Stakeholders: Outside stakeholders are taking an increasing interest in the activity of the company. • Examples: • Wal-Mart: In 2008, they donated $2.5 million in response to hurricanes Ike and Gustav. • Target: Sponsored Will Steger and the Trans-Antarctica Expedition to call attention to environmental issues

47. Trajectories of Change • Radical Change • This type of change occurs “when an industry is threatened with obsolescence of both its core activities and core assets at the same time” (Strategy). • Activities (services) are threatened by innovation of competitors • Assets (products) are threatened by price competitors • Example: • Wal-Mart vs. Dollar General: Fiddle Faddle®

48. Success Factors One-Stop Shopping 130 billion annual revenue Appealing to more upper and middle class

49. Competitive Edge Emphasis put on global ecology and environment Shift focus to more community service Eco- friendly Wal-Mart builds stores to match landscape Target implements “SmartCart” in a few stores

50. Focus Wal-mart had more than 4 billion more sales in 2008 than closest competitor, Target Kmart operated at a loss of nearly 300 million over 2 quarters Wal-mart focuses on low prices Target focuses on quality