Northeastern Professor Gao Offers 4 Point Plan of Attack To Address New Retail Realities

As a well-published academic specializing in international retailing Tony Gao, PhD, Marketing, Northeastern University, has written about some of the most complex issues the business can serve up. How does “The Antecedents and Consequences of Organizational Commitment in the Korean Retail Context” strike you for complexity?. But when it comes to the current retail environment, even he is taking a strictly back-to-basics approach.

“Value can come in different ways: same product for less money, higher quality for same price, same quality for lower price,” he explains. “To retain loyal customers and cement relationships with new customers, the value-oriented strategy must be worked into the entire organization, from operations to merchandising to communication.”

But, he warns: “Be sure to cap spending without compromising service.” Gao names BJ’s Wholesale Club as an example of a retailer that has cut costs but not customer service. “BJ’s is better utilizing its open store hours,” he explains. “The stores used to be open from 9am to 10pm but now they are open from 10am to 9pm. With the savings in labor from those two hours, the company is focusing more resources on the quality of its products.”

4 Difference-Makers For Retail
Retailers striving to survive in the current economy should offer deals early and often, suggests Gao. His advice was well-heeded during the Thanksgiving holiday weekend. In the past some retailers, particularly smaller, independent specialty companies, could get by without offering promotions and discounts but today they must offer them to help keep customers coming back.

To summarize his theories that describe which retailers will be successful during a down economy and beyond, Gao has put forth four phrases that he says will make or break retail companies:

1. Create a buffer zone. Loyalty, internal support and historic performance are all keys to creating a strong buffer zone. Gao says retailers need to ask themselves: “’How many more mistakes can you afford to make before customers turn away?’ because this is the time when customers who are not loyal will be attracted away with deals.” Additionally, companies will strong support from the board of directors will have more leeway to tackle challenges and retailers that have performed well historically have a better chance of survival.
2. Implement innovative marketing programs. Retailers should literally think outside the box when planning marketing strategies. For example, Baby Universe has aligned with Costco.com, giving the company another source of sales. BJ’s is expanding its consumer base by targeting more traditional grocery shoppers with smaller packages of products compared to Costco and Sam’s Club.
3. Fit with today’s times. Retailers that offer necessities will fare best in this economy, Gao notes, including food, consumables, drugs and gasoline. Also, retailers offering great value to their customers will come out on top.
4. Offer diversification. Retailers should diversify their merchandise offerings, their geographic selling areas and their selling channels, Gao says. “Retailers like Walmart that offer a broad scope of merchandise will fare better than those who offer a narrow selection,” he says. “Walmart also receives 20% of its revenue from Europe. That is diversification.”

Bracing for a difficult 2009
After evaluating relative success or failure following the holiday season, retailers can expect to be faced with a difficult economy throughout 2009 and possibly beyond, says Gao. “Retailers will have to adjust their mentality to react to this environment,” he notes. “Maybe it’s not the best time for major strategic investments, but it is a good time to fine-tune operations and focus on customer service.”

Gao cites Lowe’s as a retailer ahead of the curve with customer service. “Lowe’s executives argue that even though sales may not be as good as they were in 2005, the company is better in terms of having systems in place to better serve all customers. All retailers should be doing some of that right now.”

When the holiday numbers are finalized in March, expect to see some bankruptcy announcements, he says. “We may not see a lot of bankruptcies, but definitely some. I don’t expect overall economic conditions to be much better in March or April of 2009, so retailers that didn’t fare well during the holidays will be under deep pressure.”