Retail Success and Key Drivers

Abstract

The global retail landscape is changing in some dramatic ways. Retail sales are currently improving. At the same time, competitiveness of both the U.S. retail and global marketplace is escalating. Whereas category dominant retailers were once the store of choice for a variety of products, chains like Wal-Mart, Carrefour, METRO Group, Tesco and Target have taken over in most categories ranging from toys to jewelry. As the world’s leading retailer, Wal-Mart has a formidable history of providing greater value to consumers than its competitors, in part due to its innovative supply chain management. French-based Carrefour, the world’s second largest retailer, operates five different formats in 30 countries (but not in the United States).1 Based in Germany, METRO Group is ranked fourth in global sales after Wal-Mart, Carrefour, and Tesco, and it operates four different types of retail formats in 32 countries (Table 1).

Costco is the sixth largest retailer in the U.S. and the ninth largest in the world.2 It has developed a unique retailing strategy that has allowed it to outperform other warehouse club stores such as Sam’s Club. A critical component of their strategy is value-based pricing. They generally do not markup merchandise more than 14 %, compared to most supermarkets and department stores who markup products 25 and 50 %, respectively. They also create a lot of excitement by offering limited assortments of prestigious merchandise, such as Waterford Crystal, Polo/Ralph Lauren apparel, and fine diamonds. Their total assortment is about 4,000 stock keeping units (SKU), compared to about 150,000 SKU in a typical Wal-Mart store. This highly edited assortment creates a sense of urgency for their customers – buy it now or it will be gone tomorrow. While a typical grocery store might carry ten brands of ketchup in three different sizes, Costco will carry only one SKU. It has also taken a very proactive orientation towards its employees, and compensates them generously. Although Costco’s innovative approach has proved to be successful, they continue to look for new ways to offer exciting products, prices, and retailing experiences.