Sephora. Rather than visiting their local drugstore to grab inexpensive, questionable quality cosmetics or heading to a department store to visit high-end makeup counters, customers shopping at Sephora encounter fun in-store environments that encourage them to play with the products, which include both store brands and Page 162famous names. Unlike competing beauty retailers, Sephora also provides customized experiences for each customer. In its TIP (Teach, Inspire, Play) stores, customers can use augmented reality tools to try on makeup products virtually and identify the most flattering shades for them to purchase and wear.4 For customers who want a more high-touch experience, Sephora’s Beauty Advisors provide personalized consultations and makeup classes in select retail locations.

A retail strategy indicates how a retailer will deal effectively with its environment, customers, and competitors.2 As the retail management decision-making process (discussed in Chapter 1) indicates, the retail strategy (Section II) is the bridge between understanding the world of retailing (Section I) and more tactical merchandise management and store operations activities (Sections III and IV) undertaken to implement the retail strategy. The first part of this chapter defines the term retail strategy and discusses three important elements of retail strategy: (1) the target market segment, (2) the retail format, and (3) the retailer’s bases of sustainable competitive advantage. Then we outline approaches that retailers use to build a sustainable competitive advantage. After reviewing the various growth opportunities, including international expansion, that retailers can pursue, the chapter concludes with a discussion of the strategic retail planning process.

Retailers can offer the same merchandise but differ in the variety and assortment of merchandise offered. Variety (also called breadth) is the number of merchandise categories a retailer offers. Assortment (also called depth) is the number of different items offered in a merchandise category. Each different item of merchandise is called a stock-keeping unit (SKU). Some examples of SKUs include an original scent, 33-ounce box of Tide laundry detergent with bleach, or a blue, oxford cloth, long-sleeve, button-down-collar Ralph Lauren shirt, size medium.

It might sound strange, in the e-commerce and mobile commerce era, to hear the Walmart CEO claim that bigger stores and supercenters are the wave of the future. But in Walmart’s most recent strategic plan, these stores do far more than stock goods and maintain checkout lines. In this vision, the supercenters are the foundation for every advance, innovation, and service that the retailer will achieve, in every channel and for every consumer market, as well as every role it will play for its customers.1