Retail Management-Can extreme value retailers defend themselves against general merchandise discount retailers like Wal-Mart, or will Wal-Mart eventually drive them out of businessWhy
Retail Management-Can extreme value retailers defend themselves against general merchandise discount retailers like Wal-Mart, or will Wal-Mart eventually drive them out of businessWhy
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Retail Management
CASE 1 Rainforest Café: A Wild Place to Shop and Eat
Steve Schussler the first Rainforest Café in the Mall of America, the largest enclosed mall in the worlds, in 1994. Before opening this unique retail store and theme restaurant, Schussler tested the concept for 12 years, eventually building a prototype in his Minneapolis home. It was not easy sharing a house with parrots, butterflies, tortoises, and tropical fish, but Schussler’s creativity resulted in a highly profitable and fast-growing chain.
In 1996, the Rainforest Cafés (www.rainforstcafe.com), located in Chicago; Washington, DC; Fort Lauderdale, Florida; and Disney World in Orlando, Florida, in addition to the Mall of America in Minneapolis, Minnesota, generated $48.7 million in sales and $5.9 million profits. They offer a unique and exciting atmosphere, with state-of-the-art décor and animatronics that recreate a tropical rain forest in 20,000 to 30,000 square feet. The cafés are divided in to a restaurant seating 300 to 600 people and a retail store stocking 3,000 SKUs of unique merchandise.
Retail merchandise accounts for 30 percent of the revenues generated by the cafés. Most theme restaurants stock fewer than 20 SKUs. At Rainforest, the merchandise emphasizes eight proprietary jungle animals featured as animated characters in the restaurant. They include Bamba the gorilla, Cha Cha the tree frog, and Ozzie the orangutan. In addition to stuffed animals and toys, the characters are utilized on clothing and gifts and in animated films and children’s books.
The menu features dishes such as Leaping Lizard Lettuce Wraps, Rasta Pasta, Seafood Galapagos, Jamaica Me Crazy, and Eye of the Ocelot (meatloaf topped with sautéed mushrooms on a bed of caramelized onions). The restaurants have live tropical birds and fish plus animated crocodiles and monkeys, trumpeting elephants, gorillas beating their chests, cascading waterfalls surrounded by cool mist, simulated thunder and lightning, continuous tropical rain storms, and huge mushroom canapés. As Schussler said, “Our cafés feature the sophistication of a Warner Brothers store with the animation of Disney.”
Rainforest Cafés contribute to the local community through an outreach program. Over 300,000 schoolchildren visit the cafés each year to hear curators talk about the vanishing rain forests and endangered species. All coins dropped into the Wishing Pond and Parking Meter in the cafés are donated to causes involving endangered species and tropical deforestation.
Technology is used in the Rainforest Cafés to increase efficiency and profits. When a party enters the restaurant, the host (called a tour guide) enters the party’s name in a computer, which prints a “passport” indicating the party’s name, size, and estimated seating time. The party can then go shopping or sightseeing, knowing it will be ushered into the dining room within 5 to 10 minutes of the assigned seating time. When the party returns, the computer tells the “safari guide” the table at which the party will be seated. Tour and safari guides communicate with one another using headsets. This technology enables the Rainforest Cafés to turn tables five to six times a day compared with two to three turns in a typical restaurant.
The company expanded rapidly. By 2000, it had annual sales of $200 million but earned only $8 million in profits from 28 locations. Many of the locations were in regional malls rather than high-traffic entertainment centers at which the restaurants were initially located. As of 2005, Rainforest café was the only restaurant concept at all three U.S. Disney locations. This restaurant can be found in 16 states and Canada, China, Mexico, and Europe.
After a protracted negotiation, Rainforest Café was acquired by Landry’s, which operates 300 restaurants in 36 states under the trade names Joe’s Crab Shack, Landry’s Seafood House, Crab House, Charley’s Crab, Chart House, Rainforest Café, and Saltgrass Steak House, generated $1.2 billion in revenue in 2004. Tilman Fertitta, the founder and CEO of Landry’s, explains his strategy for operating restaurants: “Our approach was always been simple. Put good concepts in good locations. Rainforest is a strong concept. The problem wasn’t with sales. The worst stores do $5 million a year. That’s very different from other entertainment chains like Planet Hollywood and Hard Rock Café. The major problem was poor locations in shopping centers with high lease costs.” Following the acquisition, Landry’s closed a number of Rainforest’s mall locations but opened up new locations in London’s Piccadilly Circus, Euro Disney outside Paris, Niagara Falls, the MGM Grand Hotel and Casino in Las Vegas, and Fisherman’s Wharf in San Francisco.
DISCUSSION QUESTIONS
- What is Rainforest Café’s retail offering and target market?
- Were malls good locations for Rainforest Cafés? Why or why not? What would be the best location types?
- Many retailers have tried to make their stores more entertaining. In a number of cases, these efforts have failed. What are the pros and cons of providing a lot of entertainment in a retail store or restaurant?
CASE 2 Providing a Retail Experience: Build-A-Bear Workshop
Today’s consumers want good value, low prices, and convenience, but they also are attracted to a great shopping experience. Build-A-Bear Workshop, a chain with over 170 stores generating $300 million in annual sales, is a teddy-bear-themed entertainment retailer whose stores are playgrounds for children.
The stores are exactly what the name says: Customers, or builders, choose an unstuffed animal and, working with the retailer’s staff, move through eight “creation stations” to build their own bear. At the first station, the Stuffiteria, children can pick fluff from bins marked “Love,” “Hugs and Kisses,” “Friendship,” and “Kindness.” The stuffing is sent through a long, clear tube and into a stuffing machine. A sales associate holds the bear to a small tube while the builder pumps a foot peddle. In seconds, the bear takes its form. Before the stitching, builders must insert a heart. The builders follow the sales associates’ instructions and rub the heart between their hands to make it warm. They then close their eyes, make a wish, and kiss the heart before putting it inside the bear. After selecting a name and having it stitched on the bear, builders take their bears to the Fluff Me station, where they brush their bears on a “bathtub” that features spigots blowing air. Finally, they move to a computer station to create a birth certificate for their bear.
Bears are sent home in Club Condo boxes, which act as mini-houses complete with windows and doors. Besides adding value as playhouses, the boxes advertise Build-A-Bear to the child’s friends. “[You] could buy a bear anywhere” says Maxine Clark, founder and Chief Executive Bear. “It’s the experience that customers are looking for.” The experience is depicted on the retailer’s Web site, www.buildabear.com.
Customers pay about $25 for the basic bear, but they can also buy sound, clothing, and accessories for their bear. To keep the experience fresh, Build-A-Bear regularly introduces new and limited-edition animals. Cloths and accessories are also updated to reflect current trends. There are also in-store birthday parties and an official CD. To make sure that customers have a great experience every time they visit, all sales associates attend a three-week training program at “Bear University,” and the firm offers incentive bear styles arriving weekly. Build-A-Bear stores also feature seasonal merchandise such as a King of the Grill bear for Father’s Day and a Sweetheart bear for Valentine’s Day.
Refact
The origin of the teddy bear was a 1930 incident in which President Teddy Roosevelt refused to shoot a cub while bear hunting. The spared animal was thereafter referred to as the Teddy Bear.
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DISCUSSION QUESTIONS
- Is the Build-A-Bear concept a fad, or does it have staying power?
- What can Build-A-Bear do to generate repeat visits to the store?
CASE 3 WeddingChannel.com
Anne is sitting at her desk eating her lunch and surfing the Internet. For a few months, she has been preparing for her wedding, which will take place in less than a month. She found many helpful articles that gave her some good ideas. These articles also helped her face reality and change her childhood dreams of a white carriage pulled by a team of horses to a stretch limo. She gave up the Snow White wedding gown with a 15-foot train and has now settled on a sleek sheath gown.
In planning her big day, Anne used the help of WeddingChannel.com to make a checklist of what she needs to do. The Web site helped her organize a guest list, design and buy her invitations, set up a gift registry, and post some information for her friends about how she and Steven met. They met in college and are from different cities; therefore, they decided to have their wedding somewhere in between where their friends and family could meet. She used the resources provided on WeddingChannel.com to book the chapel and restaurant where the reception would be held.
Every year, $72 billion is spent on weddings in the United States. The average American wedding ceremony costs $22,000. The average age of brides is 24.5, while the average groom is 26.5 year of age. With these statistics, it is no wonder that WeddingChannel.com has become so popular. Its target market is 18 to 35 years. Approximately 48 percent of engaged couples plan to use the Internet to help plan their wedding. WeddingChannel.com’s goal is to help couples make their special day easier to plan and save time finding up-to-date information.
WeddingChannel.com began on July 15, 1997. The venture has helped not only brides-to-be but also retailers. Over $100 million was spent purchasing gifts through the site in 2003. WeddingChannel.com’s patented registry system searches 1.5 million registries from its many retail partners, including Federated Department Stores (Macy’s, Bloomingdale’s, Burdines, Goldsmith’s-Macy’s, Lazarus-Macy’s and Rich’s-Macy’s), Tiffany & Co., Crate and Barrel, Neiman Marcus, Williams-Sonoma, Pottery Barn, Recreational Equipment, Inc. (REI), JCPenney, and others.
With access to so many registered couples, WeddingChannel.com has an attractive market. “Consistently, our targeted marketing tactics have resulted in five times the average Internet response rate, providing the most effective platform for companies to build their brand messages during a significant life stage when brand loyalties are being developed,” said Adam Berger, president and CEO of WeddingChannel.com. About 89 percent of all gift purchasers buy wedding gifts from a registry.
WeddingChannel.com is not only the largest bridal registry online, but it also provides a comprehensive site that couples can use to plan their wedding. WeddingChannel.com is a virtual community that provides services for couples who have many questions. Where do brides start first? Most start with finding the perfect dress. WeddingChannel.com offers over 20,000 styles of wedding gowns, including both designer brands and less expensive brands. It also provides a great way to sort through the many different styles by offering different buttons to select sleeve length, silhouette, length, and neckline. It even has a virtual model so the bride-to-be can see how she would look in a particular style of gown. The site also provides many interactive tools that help couples make a budget, guest list, wedding page, and registry. There are also many articles that range from finding a reception site to planning a dream honeymoon.
WeddingChannel.com is unique because it is a comprehensive destination for couples planning their wedding. This interactive Web page allows for couples to make a customized Internet page describing how they met, how they became engaged, their wedding party, and the theme/colors for the big day. Guests can go online and shop at the well-known stores associated with WeddingChannel.com and conveniently purchase exactly what the couple needs for their future together.
Retail Management-Can extreme value retailers defend themselves against general merchandise discount retailers like Wal-Mart, or will Wal-Mart eventually drive them out of businessWhy
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| Retail Management-Can extreme value retailers defend themselves against general merchandise discount retailers like Wal-Mart, or will Wal-Mart eventually drive them out of businessWhy |
DISCUSSION QUESTIONS
(1) What are the keys to making WeddingChannel.com a success from the perspective of the companies investing in it?
2 Why would a retailer want to invest in a virtual community like WeddingChannel.com?
- Can you think of other retailers that might benefit from developing a virtual community
CASE 4 The Chen Family Buys Bicycles
The Chens live in Riverside, California, west of Los Angeles. Terry is a physics professor at the University of California, Riverside. His wife Cheryl is a volunteer, working 10 hour a week at the Crisis Center. They have two children: Judy, age 10, and Mark, age 8.
In February, Cheryl’s parents sent her $100 to buy a bicycle for Judy’s birthday. They bought Judy her first bike when she was five. Now they wanted to buy her a full-size bike for her eleventh birthday. Even though Cheryl’s parents felt every child should have a bike, Cheryl didn’t think Judy really wanted one. Judy and most of her friends didn’t ride their bikes often, and she was afraid to ride to school because of traffic. So Cheryl decided to buy her the cheapest full-size bicycle she could find.
Since most of Judy’s friends didn’t have full-size bikes, she didn’t know much about them and had no preferences for a brand or type. To learn more about the types available and their prices, Cheryl and Judy checked the JCPenney catalog. After looking through the catalog, Judy said the only thing she cared about was the color. She wanted a blue bike, blue being her favorite color.
Using the Yellow Pages, Cheryl called several local outlets selling bikes. To her surprise, she found that a local hardware store actually had the best prices for a 26-inch bicycle, even lower than Toys “R” Us and Wal-Mart.
Cheryl drove to the hardware store, went straight to the toy department, and selected a blue bicycle before a salesperson approached her. She took the bike to the cash register and paid for it. After making the purchase, the Chens found out that the bike was cheap in all senses. The chrome plating on the wheels was very thin and rusted away in six months. Both tires split and had to be replaced.
A year later, Cheryl’s grandparents sent another $100 for a bike for Mark. From their experience with Judy’s bike, the Chens realized that the lowest-priced bike might not be the least expensive option in the long run. Mark is very active and somewhat careless, so the Chens wanted to buy a sturdy bike. Mark said he wanted a red, 21-speed, lightweight bike with an aluminum frame, cross-country tires, and a full reflector kit.
The Chens were concerned that Mark wouldn’t maintain an expensive bike with all these features. When they saw an ad for a bicycle sale at Kmart, Cheryl and Terry went to the store with Mark. A salesperson approached them at an outdoor display of bikes and directed them to the sporting goods department inside the store. There they found row after row of red 10-speed bikes with minimal accessories—the type of bike Cheryl and Terry felt was ideal for Mark.
A salesperson approached them and tried to interest them in a more expensive bike. Terry dislikes salespeople trying to push something on him and interrupted her in mid-sentence. He said he wanted to look at the bikes on his own. With a little suggestion, Mark decided he wanted one of these bikes. His desire for accessories was satisfied when they bought a multifunction sports computer for the bike. After buying a bike for Mark, Terry decided he’d like a bike for himself to ride on weekends. Terry had ridden bikes since he was five; in graduate school, before he was married, he’d owned a 10-speed; and he frequently took 50-mile rides with friends. But he hadn’t owned a bike since moving to Riverside 15 years ago.
Terry didn’t know much about current types of bicycles. He bought a copy of Bicycling at a newsstand to see what was available. He also went to the library to read Consumer Reports’ evaluation of road, mountain, and hybrid bikes. Based on this information, he decided he wanted a Serrato. It had all the features he wanted: a lightweight frame, durable construction, and a comfort sports saddle. When Terry called the discount stores and bicycle shops, he found they didn’t carry the Serrato brand. He then decided he might not really need a bike. After all, he’d been with out one for 15 years.
One day, after lunch, he was walking back to his office and saw a small bicycle shop. The shop was run down, with bicycle parts scattered across the floor. The owner, a young man in grease-covered shorts, was fixing a bike. As Terry was looking around, the owner approached him and asked him if he liked to bicycle. Terry said he used to but had given in up when he moved to Riverside. The owner said that was a shame because there were a lot of nice places to tour around Riverside.
As their conversation continued, Terry mentioned his interest in a Serrato and his disappointment in not finding a store in Riverside that sold them. The owner said that he could order a Serrato for Terry but that they weren’t in inventory and delivery took between six and eight weeks. He suggested a Ross and showed Terry one he currently had in stock. They thought the $500 price was too high, but the owner convinced him to try it next weekend. They would ride together in the country. The owner and some of his friends took a 60-mile tour with Terry. Terry enjoyed the experience, recalling his college days. After the tour, Terry bought the Ross.
DISCUSSION QUESTIONS
- Outline the decision-making process for each of the Chens’ bicycle purchases.
- Compare the different purchase processes for the three bikes. What stimulated each of them? What factors were considered in making the store choice decisions and purchase decisions?
- Go to the student side of the Online Learning Center (OLC) and click on multiattribute model. Construct a multiattribute model for each purchase decision. How do the attributes considered and importance weights vary for each decision?
CASE 5 Consumer Buying Behaviors—Is Wal-Mart in Vogue?
The September 2005 issue of Vogue magazine contained eight pages of advertisements from the world’s largest retailer, Wal-Mart. The other 792 pages contained advertisements from Ralph Lauren, The Gap, Saks Fifth Avenue, Dior, Estee Lauder, Gucci, Lancome, St. John, Louis Vuitton, Bill Blass, Yves Saint Laurent, L’Oreal, Guess Mitchael Kors, David Yurman, Clinique, Marc Jacobs, Burberry, Calvin Klein, Manolo Blahnik, Donna Karan, Paul Mitchell, Vera Wang, And Jimmy Choo, to name just a portion of the brands in this fall issue.
The ads from Wal-Mart feature real customers including a martial artist, a musician, a mom, students, a cake decorator, a professor of art, and a fundraiser. Each woman is shown with a “Her Style” profile, locating her Wal-Mart and indicating what she is wearing in the photograph from Wal-Mart and from her own closet. These ads are a departure from the smiley-faced, low-price-focused messages seen from Wal-Mart in the past.
Do Wal-Mart ads belong in Vogue magazine? To help answer this question, complete the diagram in Exhibit 1 by describing the characteristics and attributes of the Wal-Mart shopper and the Vogue magazine reader. Use the following segmentation bases to complete this exercise:
Is Wal-Mart in Vogue?
Wal-Mart Shopper Vogue Reader
Exhibit 1 Overlap of Wal-Mart and Vogue Target Markets
Demographic Gender, age, race, life stage, birth era, family size/stage, residence tenure (own/rent), marital status.
Geographic Region, city size, climate, metropolitan area, density (urban, suburb, rural).
Psychographic Personality, values, lifestyles, activities, interests, opinions.
Socioeconomic Income, education, occupation.
Benefits sought To meet customers’ desires.
Usages Rate Purchase behavior (frequency), brand loyalty.
DISCUSSION QUESTIONS
- Is there an overlap in these two consumer segments?
- Can Wal-Mart changes its image and appeal to an upscale shopper, or should it stick to loyal, cash-strapped customers?
- Would you recommend that Wal-Mart purchase additional pages in Vogue magazine this year? Explain your rationale.
CASE 6 Dollar General and Family Dollar Cater to an Underserved Market Segment
Dollar General, headquartered in Goodlettsville, Tennessee, and Family Dollar, based in Mathews, North Carolina, are the two leading retailers in the fastest growing segment of the industry, referred to as extreme value retailing. In 2005, Dollar General has over 7,500 stores in 30 states with sales surpassing $7 billion. Its annual growth in sales has been above 20 percent for the last six years. Family Dollar, with 5,600 stores in 44 states, generated over $5 billion in sales in 2004. Both retailers are opening new stores at rates exceeding a store a day.
The extreme value retail format has become increasingly popular among a variety of customers, including rural and urban shoppers, low-to middle-income young families, ethnic groups, and older customers with fixed incomes. Consumers have come to trust both of these retailers to provide good quality merchandise at low prices without the hassle of crowds and lines. The breakdown by geographic segments is 25 percent rural, 33 percent urban, and 44 percent suburban. This distribution is about the same as the sales distribution for Wal-Mart and Kmart stores. About 25 percent of U.S. households shop at an extreme value retailer once a month.
Sometimes these firms are grouped under the category of dollar retailers-retailers that sell merchandise priced under one dollar. While Dollar General and Family Dollar keep their prices typically under $15, most of their merchandise is priced over a dollar. Family Dollar has multiple price points, whereas Dollar General prices its merchandise at even-dollar price points.
About 50 percent of the merchandise sold in the stores is consumables (pet supplies, food, paper, household cleaning and personal care products), with the remaining sales equally divided among basic clothing, hardware and seasonal merchandise, and home products. The percentage of consumable sales has been increasing over the past five years. Basic stock is supplemented with opportunistic buys of closeout/liquidation and impulse merchandise giving the impression of a changing merchandise mix in the stores.
Vendors are developing new products and packaging to meet the needs of these extreme value retailers. For example, Fruit of the Loom typically sells men’s underwear in a nine-pack, but it offers small packs to value retailers. Procter & Gamble and Johnson Products also sell smaller sizes of hair care products with lower retail prices to extreme value retail chains.
Most of their locations are in the Southeast, where the companies are headquartered. The stores are small, 6,000 to 8,000 square feet, primarily located in small towns with populations under 40,000 and in suburban strip shopping centers. Because the stores are relatively small, it is easy to find good locations in almost any market the retailers choose to enter.
Initially, these extreme value retailers focused on low-income communities that were too small to support a large Wal-Mart or Kmart discount store. Residents of these towns appreciate the convenience of buying merchandise close to their homes rather than driving 30 minutes to a discount store in a larger town. Many of their customers walk to the stores. Not only are the stores closer to customers, but shoppers are able to park closer to the stores in uncrowded parking lots and avoid long checkout lines. With a small store, customers can get in easily, find what they are looking for, and get out in a few minutes. The average transaction is between $8 and $9. To maximize operating efficiencies, the retailers typically open a cluster of stores in a geographic area before entering a new area. Dollar General and Family Dollar are now opening stores in suburban strip shopping centers, using space that has been abandoned by drugstores that moved to stand-alone locations.
At one time, these extreme value retailers advertised sales using circulars. But both Dollar General and Family Dollar reduced their advertising expenses when they converted to an everyday low-pricing strategy. This cost saving allowed the retailers to pass even more savings on to their customers.
A recent Family Dollar annual report stated, “Supply chain efficiencies are vital to the success of any retailer, particularly one growing as fast as Family Dollar.” Thus, Family Dollar and Dollar General are making significant investments in point-of-sale terminals, store-level inventory tracking systems, automated distribution centers, space allocation software, and replenishment systems to reduce stockouts and increase inventory turnover.
DISCUSSION QUESTIONS
- What is the target market of extreme value retailers like Dollar General and Family Dollar?
- Why are customers increasingly patronizing these extreme value retailer stores?
- How do extreme value retailers make a profit when their prices and average transactions are so low?
- Can extreme value retailers defend themselves against general merchandise discount retailers like Wal-Mart, or will Wal-Mart eventually drive them out of business? Why?
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