The last post took the perspective of a single large retailer and potential strategies. In this post, we consider what happens with multiple players.
Large retailer ‘Red Square’ (our fictitious retail seller) announces anticipated reductions in margins due to lower consumer sales of big-ticket items like TVs. This reduction is consistent with consumer choices selecting more store brands in food and other consumables. The change in merchandise mix meant discounting against big-ticket items and cancellations of prior orders already in the manufacturing process.
To the first level question: how will the competition respond? Four specific examples:
1) Large brick and mortar global retailer ‘Blue Family’ also sells a comprehensive variety of merchandise including food and big-ticket items. A slightly different demographic from Red Square sees the price points and perceived market positioning for value-driven customers. The plan to counter Red Square will be to try to improve the value for customers while pushing manufacturers' costs to maintain Blue Family margins with the threat to reduce volume purchases. Content deals have been used in past campaigns without noticeable success so straight pricing will be the counteraction.
2) Large multi-channel (online and brick-and-mortar) specialty retailer ‘Yellow Peril’ is positioned for upscale products at higher price points. Reductions in mass consumer uptake will be slower to impact their customer demographic while needing to counter Red Square’s discounting against merchandise overlapping Yellow Peril’s highest volume products. Yellow Peril must pursue a plan to improve the perceived distinct value of higher end sales while providing a discounting plan (even with reduced margins) to counter high volume actions at Red Square and Blue Family. Content bundling deals and home-installations are specific merchandising counters to Red Square and others.
3) Giant discounter PriceIsRight counts on revenue volumes from big-ticket items to capture more consumer spending in their brick and mortar stores. Selective stocking of merchandise SKUs is combined with ‘value buyer’ features such as extended warranties (manufacturers costs) and content ‘deals’ to attract consumers. Consistent merchandising counters to discounts by Red Square are deemed to be sufficient without major disruptions.
4) Large eCommerce retailer Big Swash has been a favorite vendor during the stay-in period with home delivery of very bulky large TVs and favorable discounts. Many consumers changed behavior to all online-shopping instead of going to brick-and-mortar to view products and then buying at an online (and tax) discount. Slightly reduced margins will counter discount pricing or package deals by competitors Red Square, Blue family, PriceIsRight, and Yellow Peril. Content deals at other sellers will be countered by pre-existing content bundles across multi-media.
Red Square’s competitors aren’t caught off-guard as they have been seeing the same consumer demographic behavior changes. Financial analysis is proceeding even if they haven’t acknowledged them to the financial and investor communities. Changes will impact all of their margins and revenues
We turn our attention downstream to the industries supplying retail, and how they must react to changing customer demand. Read the next post (and the others in the series) at www.ekalore.com/the-ripple-effect
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