Building Competitive Advantage in Retailing

As the holiday season draws closer, the perennial traffic problem has reached crisis proportions.  Even before the onset of December, the road congestion at all hours of the day has become the unbearable norm.  To address this problem the MMDA is considering a 3-digit color-coding scheme, which will effectively ban cars from the road twice a week.  In addition to this, the government agency urged mall owners not to hold holiday sales during weekdays.  As vehicular traffic worsens, many retail stores experience a proportional drop in shopper traffic.  More and more people avoid the malls during the holidays.  People simply do not shop as much as they used to because travel and movement are all hampered by traffic.  To illustrate, I have completed my Christmas list and none of the gifts that I am getting requires me to go to a mall. 
Many of the gifts that I will give this year were sourced online, through home-based businesses of friends who bake, cook, or create products for the season, items chosen from catalogues of stores that deliver, bazaars, and specialty stores in stand-alone locations. The sacrifice of braving the traffic and crowds to shop in a mall is no longer necessary with so many options for sourcing gifts. 
What does this all mean for the retailer?  With declining shopper traffic resulting from the worsening congestion in our roads, retailers have to work harder than ever to attract customers to their stores, and once the customer is in the store they need to make sure that they are able to maximize that customer's spend.   This is a tall order considering the hyper competition in the retail industry.  Over the years, we have seen the overexpansion of malls and stores, even in pocket communities.  Many of these new malls do not have sufficient traffic to sustain the retailers who are inside the mall.  We have seen the rise of new formats such as hypermarkets, convenience stores, and neighborhood stores, as well as online channels locally and abroad.  All these pose a challenge to the more established formats, such as supermarkets and department stores.  What does it take to stand out and build competitive advantage in this scenario?
To answer this simply, a retailer has to be the BEST in a particular area of focus that matter to their customers.  To be the best, it has to choose one or two areas in which it will excel, for which it will be known, and that will drive traffic and sales to its stores.  Retailers must strive for a specific positioning to a specific set of customers rather than attempting to be great at everything to everybody.
The most common areas in which to stand out include the following:  CHEAPEST, FASTEST, BROADEST OR DEEPEST, HOTTEST, AND EASIEST. The retailer has to be an "est" or the best in at least one area.  It cannot excel in all areas as trade-offs are necessary.  For example, one cannot be the cheapest and have the best service.  To be the cheapest necessarily entails operating in a very basic way.  One of the worst things for a retailer to be is mediocre, to be in the hostile middle ground, or to stand for nothing in particular.  If it does not stand for an "est" in the minds of the customer, it will fall into what is referred to by writers McMillan and Doolittle as the "black hole."  This is the place where mediocre retailers go to die.
Let's look at each of these dimensions.
These are the retailers who focus primarily on price.  They have a clear price advantage over all their competitors.  To be in this position requires very low cost operations, scale, and business processes that bring down the cost of doing business.  Some examples abroad include Wal-Mart, which is the number one retailer in the world. Here in the Philippines, 168 Mall in Divisoria would also fall in this position.
These are retailers focused on speed of service.  They strive to be the fastest in serving their customers.  Typically, these companies have many convenient locations, have a system for serving the customers quickly and efficiently, and have a simple, fast, and accurate process of helping customers find and buy what they need.  McDonald's comes to mind as an example of a retailer that would fall in this category.
These are retailers who have a dominance of a particular merchandise category.  They are also known as category killers.  They either have the broadest or deepest assortment in their categories of focus.  Home Depot and Best Buy in the U.S.  are examples of category killers.  Here in the Philippines, we have the likes of Ace Hardware or Toy Kingdom.
These are retailers who have the latest and most updated fashion. Zara's and H&M are examples of stores who have the hottest fashion in-store at all times.  From the catwalk in Milan, you will often see the same fashion in Zara's and H&M in a matter of two weeks.  They turn their inventory quickly, replenish weekly, and through process innovation are able to deliver the latest fashion to their stores worldwide faster than anyone else.
These are the retail companies that are focused on serving their customers better than anyone else in their category.  They understand their customers' needs, wants, and aspirations and they provide solutions to their customers' problems.  Nordstrom in the U.S. is renowned for its well-trained employees who will knock themselves out to satisfy customers.  Here in the Philippines, retailers like Rustan's are likewise known for its outstanding service.
Clearly, customers have less time to shop.  They are more selective in terms of where they will spend their time.  They are more knowledgeable about the products they want to buy.  They are able to compare prices online and have multiple options from which to buy these products.  To build competitive advantage, retailers need to be the BEST.  Nothing less will do.

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About the Author

Frances Yu is the former Chief Retail Strategist of Mansmith and Fielders, Inc. For more information, please email

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