Small Chains Can Win

By Scot Meyer
Mass Market Retailers
Feb. 7, 2005

NEW YORK — Wal-Mart Stores Inc. proves that bigger can be better, as it leverages its tremendous scale to cut costs and lower prices. However, size is not the only factor that matters, according to retail experts at A.T. Kearney, who contend that the right strategy can let smaller retailers compete effectively.

There is no question that the pressure on retailers is intense, said Serif Mityas, vice president of retail practice at A.T. Kearney, at a National Retail Federation presentation called ‘‘Thriving in a Wal-Mart World: How ‘Focus’ is Helping Mid-Sized Retailers Survive, Succeed and Prosper.’’

‘‘Intense global competition and dramatic consumer shifts are redefining the rules of the road,’’ Mityas says, ‘‘and Wal-Mart and other value players are meeting those escalating demands and outpacing the competition. Many retailers are hard pressed to compete, but some mid-size players are deploying strategies to survive and win.’’

Mityas and his company recommend six strategies. Retailers should carefully cultivate and manage a brand portfolio, for example. ‘‘Companies need to decide what they are going to stand for in the minds of consumers,’’ he says.

Strategy two is to uniquely differentiate their products and format assortments, while strategy three is to relentlessly focus on optimizing gross margin. The fourth strategy involves moving goods through the supply chain more efficiently. ‘‘That’s the competitive advantage of many value players,’’ Mityas said.

Strategy five is to aggressively leverage technology; strategy six is to slash selling, general and administrative costs.

Retailers need to adopt several of the strategies to succeed and prosper, according to Mityas. ‘‘It’s not enough to pick and choose,’’ he said.

Mityas participated in a panel discussion with A.T. Kearney’s Jim Singer and two retailers.

Jerry Golub, vice president of marketing at Price Chopper supermarkets, said one element of his company’s strategy involved coming up with a ‘‘meaningful value proposition.’’

‘‘That’s a compelling reason why people will shop us versus any other store,’’ Golub said.

The privately held Price Chopper sees its value proposition as being based on both price and quality. On the price side of the equation, according to Golub, are a strong focus on promotional programs (including loyalty card programs), a three-tiered private label program, the use of bonus packs and special deals, a dollar aisle in some stores, instore merchandising that delivers value, and competitive everyday pricing.

‘‘On the quality side of the equation, we strive to be the premier perishables merchant in every market we serve,’’ Golub said. ‘‘After all, Wal-Mart can sell Heinz ketchup at 89 cents. But Wal-Mart cannot make, in-store, artisan breads that are handmade, from scratch, the way the Old World bakers used to make them.’’

Some perishables sections have turned into destination departments, Golub added, citing the in-store sushi departments in some stores, and the salad bars and prepared food offerings, the aforementioned bread and a new line of high-end deli meats.

The other elements that Golub said are key to Price Chopper’s success are:

--Delivering a superior shopping experience. ‘‘This is something Wal-Mart does not have,’’ he remarked.

--Being an involved corporate citizen. ‘‘We do this because feel its the right thing to do,’’ Golub said. ‘‘But we are also conscious of the fact that our involvement in all of the communities we serve helps to create a bond, an emotional link, between our customers and our company.’’

--Having an in-depth understanding of its customers.

--Executing its strategies. ‘‘No idea is any good unless it can be executed effectively in the store.’’

The other retailer on the panel was Mark Scott, president and chief operating officer of Levitz Home Furnishings Inc. Scott noted that the large discounters are starting to sell more household furniture, and that while they are currently focused more on ready-to-assemble case goods, Wal-Mart recently announced plans to source wood furniture in India.

Although furniture-only retailers will have to react to the new competition, Scott contended that the furniture category is different from many of the ones discounters have come to dominate.

Although consumers want low prices, price actually only ranks No. 7 on the list of what people want from a furniture store, for example, Scott said. More important are financing plans that let consumers put little or no money down and pay for their furniture over time. Many furniture retailers let consumers take a full year before making any payments. Furniture retailers also have to deliver purchases to consumers’ homes. Levitz’ strategy has been to slash operating costs to free cash that can be invested in growth, Scott said.