Discount and Variety Retail
Industry Analysis
Whitney Horton
Ashley Burnett
Shawn Buck
Jennifer Shotts
Sam Snelling
Kelly Riester
Mickea Smith
Overview
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Industry Definition
Competitor Analysis
Industry Structure
Industry Environment
Industry Evolution
Conclusion
Discount and Variety Retail
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$130 billion in annual revenue
Consists of:
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Merchandise stores
Discount department stores
Warehouse clubs
Supercenters
Products
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NAICS definition of warehouse clubs and
supercenters:
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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
Customers
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Lower to Upper Middle class
Target
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Average income of $63,000
80% of customers have attended college
48% have completed college
Wal-Mart
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Sees 100 million customers on a weekly basis
Average income is below national average
1 in 5 customers do not have bank accounts
Geography
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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
Stages in the Product
Distribution Pipeline
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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
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40 distribution centers
Serve 75-100 stores in 250 mile radius
Service a store within 24 hours
Know Companies in the industry
Wal-Mart
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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.
Target
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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.
Kmart
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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.
Comparisons of Companies
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Positions in the industry
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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
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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.
Comparisons of Companies Cont.
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Strategic intent
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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
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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.
Comparisons of Companies Cont.
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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.
Competitor Analysis
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Design Concept:
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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.
Competitor Analysis
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Physical Resources:
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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.
Competitors analysis
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Management:
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Target is very big on environmental services.
They have had many awards over the past couple
of years
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“Americas most admired company” Fortune
“Top 100 employers for Women
And many more.
Competitor analysis
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Finances:
This is measured by the
current ratio which is
CA/CL
Liquidity 2007
1.4
1.2
1
0.8
Liquidity 2007
0.6
0.4
0.2
Debt to equity ratio
0
Wal-Mart
Target
Sears Holding
Company
1.6
1.55
1.5
1.45
Debt to equity ratio
1.4
1.35
1.3
Wal-Mart
Target
Sears Holding
Company
This means for
every dollar of
equity they have
that amount of
debt.
Competitor Analysis
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Finances
Inventory Turnover
9
8
7
6
5
Inventory Turnover
4
This is measured by how
many times a company
turns over their inventory in
a year.
3
2
1
0
Wal-Mart
Target
Sears Holding
Company
Long term cost of debt
7.00%
6.80%
6.60%
6.40%
6.20%
Long term cost of debt
6.00%
5.80%
5.60%
5.40%
Wal-Mart
Target
Sears Holding
Company
This graph
shows the
average rate of
interest that
they borrow at.
Company Compatibility Profile
Industry
product strength, quality, uniqueness
customer loyalty
market share
low selling and distribution costs
use of experience curve
use of life cycle of products
investment in new product development by R&D
high barriers to entry into the company's markets
advantage taken of market growth potential
supplier strength and material availability
customer concentration
0%
Weak
Neutral
Strong
100%
Industry structure
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Threat of entry
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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.
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They have to be creative in finding ways to get people
shopping at their stores.
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Offering exclusive gift items & giving more personalized
service or hosting event and fund-raisers to lure in more
foot traffic.
Powerful Suppliers & Buyers
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Suppliers
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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.
Powerful Suppliers & Buyers
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Buyers
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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.
Discount Stores:
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Industry overview
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Annual revenue of $130 billion
Discount department store Industry encompasses
5000 individual retail stores.
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Franchise giants like Target, Wal-Mart, Kmart.
Top 8 companies hold 100% of the industry sales.
Discount stores:
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Competitive Landscape
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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, offprice, and specialty stores as well as wholesale
clubs, online stores, and catalog retailers.
Products, Operations &
Technology
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Products
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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.
Products, Operations &
Technology
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Operations
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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.
Products, Operations &
Technology
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Technology
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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.
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
Real Personal Consumption
Clothes
427.2
Food
1,133.6
Gas
179.1
Fuel, Oil & Coal
11.9
Other
695.1
Total Non Durable
2,420
Total Consumption
83,413
Economic Factors Continued
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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.
Is the Stimulus Package
working?
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The retail industry is not necessarily being
helped by the stimulus package
People are still being cautious with their
money
Political Factors
Small communities are starting to put a Store Cap on new retail
stores entering the market.
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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
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Now including “retail clinics” that are cheap and fast
Many stores are also offering generic drugs that are priced as low as
$4.
Social Factors
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The Target Market for the Discount and Variety Retail Industry
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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
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Education is a factor for both the target market and location
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For Target Corporation, the average shoppers has attended college and
almost half have graduated from College with a bachelor degree
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Discount and Variety stores are no longer viewed as being a place
for lower income families
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The creation of “Cheap Chic”
Popularity of Bargain Shopping
Global Trends
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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
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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.
Global Trends Continued
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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
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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.
Geographical Factors
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Walmart: 112
Target: 31
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Best buy: 20
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Use 3PL and ERP
systems for efficiency
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3 shifts (24 hours a
day)
Headquarters
Foreign Markets
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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
Competitors
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Top three companies within the industry comprise
95% of its sales.
Ease of entry is non-existent on a large scale.
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Environmental initiatives taken by the industry.
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Small firms cannot compete with industry leaders incentive
in the market place
3 million a week, scholarships, “going green”
“Segmentation of the market is the key to success”Lee Scott (Wal-Mart)
Technological Change
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MRP systems reduce human error in
inventory levels
Raw Materials: 20% are used by the industryBloomberg
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Bottom line: increased prices for the consumer
Industry Evolution
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Why Change?
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Companies must predict trends and alter their products and
services to fit customer demand
Driving Forces for Change
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Social factors
 Health concerns
 Nutrition
 The “Going Green” movement
 Fashion trends
Technological advancement
 Information Age
Charitable Reputation
 Corporate Social Responsibility (CSR)
Social Factors
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Health Concerns
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Medication
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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
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Wal-Mart: OneSource nutrition centers
Social Factors (cont.)
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The ‘Going Green’ movement (examples)
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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
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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
Technological Advancement
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Information Age
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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.
Charitable Reputation
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Corporate Social Responsibility (CSR)
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How a company makes a positive impact on society.
Why important?
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Stakeholders: Outside stakeholders are taking an
increasing interest in the activity of the company.
Examples:
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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
Trajectories of Change
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Radical Change
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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).
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Activities (services) are threatened by innovation of
competitors
Assets (products) are threatened by price competitors

Example:
 Wal-Mart vs. Dollar General: Fiddle Faddle®
Success Factors
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One-Stop Shopping
130 billion annual revenue
Appealing to more upper and middle class
Competitive Edge
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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
Focus
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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
Conclusion
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Faster- paced world
Dual-income families
More convenient shopping
Time and money more valuable