POST RECESSION RETAILING - W&RSETA · The recession has brought about a shift in Consumer Behaviour...

POST-RECESSION RETAILING

The recession has brought about a shift in Consumer Behaviour

and spending patterns. The impact of the above will continue

and fundamental changes are expected in 3 key areas:

Increasing dominance of value retailing and cost control

efficiencies related to supply chain and consolidation.

Syndicate Group 5 – W&RSETA ILDP 2011

Kay Raidoo – Woolworths, Jeremy Butler-Mr Price, Rudy Richards –

Edcon, Michelle Naidoo – Makro, Rakesh Maharaj – Shoprite Group,

Sydwell Serakwane – Pick ‘n Pay

Syndicate Group 5 ILDP 2011

K RAIDOO, S SERAKWANE, R RICHARDS, R MAHARAJ, M NAIDOO, J BUTLER

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Executive Summary Retailers are faced with the reality of a change in customer behaviour post the recession and in the current low

growth economic environment. Most retailers are asking themselves the question “do we conduct business as

usual?” This paper will investigate the shift in consumer behaviour and changing spending patterns the

recession has brought about and how this shift in consumer behaviour has impacted both the local and

international retail landscape. Key to this research is to determine the impact the recession had on international

and local retail companies relating to expected changes in the way they deliver value to the business and to the

customer. Areas such as value retailing, consolidation, and structural shifts in Supply Chain will be the

emphasis of this report.

Problem Statement

The recession has brought about a shift in Consumer Behaviour and spending patterns. The impact of

the above will continue and fundamental changes are expected in 3 key areas: Increasing dominance

of value retailing, structural shifts in supply chain and consolidation.

Objective & Aim

In this study, we explore the degree to which the recession has affected the Retail Sector and how this impact

has led to a change in consumer behavior, resulting in Retailers being forced to change their strategies. From a

research perspective, this article may prove valuable as it identifies and describes a theoretical view on Value

Retail, Supply Chain methodology and factors that will lead to Consolidation. This report will also seek to

provide the W&RSETA and its stakeholders with tactical and implementable alternatives and recommendations

on Value Retail strategies, supply chain efficiencies and opportunities to consolidate. These recommendations

are intended to assist retailers in effectively managing the change in consumer behavior and the resultant

demands on business to deliver value.

Research Methodology

A comprehensive literature review was conducted which was supplemented by qualitative and quantitative

interviews. The research was also supported with an international retail in-market immersion. The paper

provides insight into the effects of the recession and changes in consumer behavior. An in-depth analysis of

value retailing, supply chain and consolidation was also conducted

Recommendations and Implementation

The paper provides implementable recommendations supported by a suggested implementation plan. We

propose a compelling Value Retailing Model that extends beyond price, for retailers to consider in sustaining

profitability now and in the future. We also recommend structural shifts in supply chain and consolidation as

drivers to achieve competitive advantage in the market.

In conclusion, it is stated that the change in consumer behavior will remain into the foreseeable future. It is

therefore strongly suggested that Retailers review and adapt their strategies related to Value Retail, Supply

Chain and Consolidation, to be successful companies in the ever changing South African retail landscape.



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Table of Contents Executive Summary ................................................................................................................................................ 1

Introduction ............................................................................................................................................................ 4

Problem Statement .................................................................................................................................................. 4

Objective & Aim .................................................................................................................................................... 4

Research Methodology ........................................................................................................................................... 5

Literature Review ............................................................................................................................................... 5

Qualitative Research .......................................................................................................................................... 5

Quantitative Research ........................................................................................................................................ 5

Research Limitations and Exclusions ................................................................................................................. 6

The Recession and its impact on Retail .................................................................................................................. 6

Table 1 South African Negative GDP Growth ................................................................................................... 6

Figure 1 IMF Global Economic GDP Growth & Forecast ................................................................................. 6

The change in consumer behavior .......................................................................................................................... 7

Local Customer Findings ................................................................................................................................... 8

Figure 2 Food Retailers ...................................................................................................................................... 8

Figure 3 Clothing Retailers ................................................................................................................................ 8

Figure 4 General Merchandise ........................................................................................................................... 8

Value retailing a strategy or must? ......................................................................................................................... 9

Figure 5 Customer Confidence........................................................................................................................... 9

Figure 7 Customer Preference .......................................................................................................................... 10

Figure 6 Service, Price & Quality Preference .................................................................................................. 10

Supply Chain ........................................................................................................................................................ 10

Consolidation .......................................................................................................................................................... 9

I. Brand Consolidation .................................................................................................................................. 9

II. Centralized Buying/Procurement System ................................................................................................ 10

III. New entrants into the market .............................................................................................................. 10

IV. Centralized Distribution System ......................................................................................................... 10

V. Supplier Consolidation ............................................................................................................................ 10

VI. SKU Consolidation ............................................................................................................................. 11

Recommendations ................................................................................................................................................ 11

Implementing a Value Compass....................................................................................................................... 11

Value Compass as adapted from JC Williams 2011......................................................................................... 11

Implementing or amending a Value Retailing Model ...................................................................................... 12

Results .............................................................................................................................................................. 12



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Process Quality ................................................................................................................................................. 13

Price ................................................................................................................................................................. 14

Customer access cost ........................................................................................................................................ 14

“An exceptional supply chain must be tailored to the customer experience you’re trying to have.” ............... 15

Develop a seamless and efficient supply chain ................................................................................................ 15

Figure 8 Supply Chain...................................................................................................................................... 15

Outsourcing warehousing and distribution ....................................................................................................... 16

Outsource Management of Supply Chain......................................................................................................... 16

Centralised Distribution ................................................................................................................................... 16

Optimize cash and inventory management systems to manage costs ............................................................... 16

Monitor Information Systems .......................................................................................................................... 16

Centralized Buying ........................................................................................................................................... 17

SKU Consolidation .......................................................................................................................................... 17

Supplier Consolidation ..................................................................................................................................... 17

Implementation Plan ............................................................................................................................................. 18

Conclusion ............................................................................................................................................................ 19

Appendices ........................................................................................................................................................... 20

Appendix 1 Questionnaire for Business Executives and Analysts ................................................................... 20

Appendices 2 Customer Survey ....................................................................................................................... 21

Appendix 2 Customer behaviour trends post-recession ................................................................................... 22

Appendix 3 Executive and Analyst name references ....................................................................................... 23

Bibliography ......................................................................................................................................................... 24



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Introduction The 2008-2009 economic recession changed customer and business behaviours, not unlike how a hurricane

reshapes the built and natural environment (Canning, 2010). Retailers are faced with the reality of a change in

customer behaviour post the recession and in the current low growth economic environment, most retailers are

asking themselves the question “do we conduct business as usual?” To answer this question, the need for new

and innovative ideas and strategies on how best to capture value through their products and services arises. This

research will investigate the shift in consumer behaviour and spending patterns the recession has brought about

and how this shift in consumer behaviour has impacted both the local and international retail landscape. Key to

this research is to determine the impact the recession had on international and local retail companies relating to

expected changes in the way they deliver value to the business and to the customer. Key areas such as value

retailing, consolidation, and structural shifts in supply chain will be the emphasis of this report.

Problem Statement The recession has brought about a shift in Customer Behaviour and spending patterns. The impact of the above

will continue and fundamental changes are expected in 3 key areas: Increasing dominance of value retailing,

structural shifts in Supply Chain and Consolidation.

Objective & Aim Retailers agree that the biggest effect of the global recession on business has been on consumer behaviour.

Many U.S. consumers have completely, and perhaps permanently, altered their buying habits according to

Canning (2010). This means that the biggest challenge for any retailer is to interpret consumer trends and to gain

valuable insight to help future planning (www.worldretailcongress.com). The recession’s impact on customer

experience is not going to fade quickly (www.destinationcrm.com). Certain financial and emotional issues will

endure for many years to come. Our future customer, the one who experienced the global financial crisis of

2008/ 2009, will continue to live with residual uncertainty. The threat of unemployment and of a questionable

financial future may ease but will most likely stay in their conscience. In this study, we explore to what degree

the recession has affected the Retail Sector and how this impact has led to a change in consumer behaviour. The

change in Consumer Behaviour forced Retailers to consider changing their strategies. From a research

perspective, this article may prove valuable as it identifies and discusses the following:

The impact of the recession on retail in SA

Results in changes to consumer behaviour

Theoretical analysis of the importance of value retail

How to optimize supply chain efficiency, and

Understanding consolidation as an alternative in cost control management.

This report will also aim to prove that customers are demanding more value from retailers and therefore a

proactive response to this change in customer behaviour will result in:

Increased sustainability

Enhanced competitiveness

Increase in market share

Increased relevance.

http://www.destinationcrm.com/



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In conclusion this report will also seek to provide the W&RSETA and its stakeholders with tactical and

implementable recommendations on Value Retail strategies, supply chain opportunities and options to

consolidate opportunities.

Research Methodology Literature Review

In the exploratory phase of our investigation and research, books and journals such as “Competing in Tough

Times” by Barry Berman, “Reacting to Consumer Trends” by Angela Andal-Acion, “Marketing out of the

Recession” by Nigel F. Piercy and “Consumer Spending During Economic Downturn” by Television Week©

played a vital role in our investigation and defining our problem statement. This literature also played a pivotal

role in our theoretical discussions. Included in this research, is an investigation that was conducted through

augmenting previously done research such as “Value in use through service excellence” by Sara Sandström, Bo

Edvardsson, Per Kristensson and Peter Magnusson, and “Consumer Perceptions of Price, Quality and Value” by

Valarie A Zeithaml.

Qualitative Research

We also conducted interviews with 15 business executives and 5 industry analysts from leading local and

international companies, a list of which can be found in the Appendix. This provided us with qualitative

information to supplement our overall findings and served the basis of our discussions and recommendations

(refer to Annexure 1). The interviews we conducted with company executives and managers provided us with

their insights on the recession and the impact it had on their businesses. Their responses also revealed their

views on Value Retail, Supply Chain and Consolidation. The responses from the business executives and

analysts helped us draw conclusions on the recession’s impact on the retail landscape and the results of the

customer surveys validated the change in consumer behaviour. Our qualitative research interview approach was

to separate the type of questions asked to retail executives from the questions asked to analysts. In each case,

retail executives provided us with an in-depth microanalysis of their own businesses as well as how they

perceive the current global and local picture. Analysts provided us with a macro opinion of both the economy

and the role the retail sector plays in it.

Our Research scope included the following questions which formed the f oundation of

our investigations

Have retailers changed the way they are doing business?

What was the impact the recession had on the retail landscape?

Has the Fifa World Cup concealed the true impact of the recession on the South African Economy and

the Retail Landscape?

What was the Recession’s impact on consumer behaviour? And did a shift in consumer behaviour

really occur.

And finally, how did the change in consumer behaviour prompt retailers to adapt their strategies with

specific focus on Value Retailing, Supply chain management and Consolidation.

Quantitative Research

We also gained insights into consumer behaviour and preferences through conducting a customer survey (refer

to Appendix 2). Customer surveys that were conducted included a small questionnaire whereby some of the

major retail players were segmented into High-end, Mid-end and Low-end retailers across the Food, Apparel

and General Merchandise sectors, as detailed in the appendices (due to the number of retailers in the Mid-end

sector of the Food retailers the results were slightly over indexed in this category). The survey was sent to a



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group of 460 independent customers and the response rate was 97%. The target group in question are all

active shoppers in the retail industry.

Research Limitations and Exclusions

For the purpose of this research, no demographic classifications were made. The list of stores used as part of the

survey was not inclusive of all retailers operating in South Africa. Only well-known retailers with strong brands

were used as part of the survey and these retailers were classified under high end, medium end and low end

retailers. Consumers were not categorised based on race, income, male and female which could impact the

outcome of the results of the survey.

The Recession and its impact on Retail In 2009, South Africa entered a recession after 17 years of positive GDP growth. Recession is defined as a

period of temporary economic decline during which trade and industry activity such as production; purchasing,

selling and employment are reduced (www.wikipedia.com). South Africa experienced negative GDP growth as

outlined in the table below.

-6

-4

-2

0

2

4

6

8

101

98

0

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

Global Economic GDP Growth and Forecast

South Africa Advanced economies Emerging and developing economies World

Figure 1 IMF Global Economic GDP Growth & Forecast

Last Quarter 2008 First Quarter 2009 Second Quarter 2009

-1.80% -7.40% -2.80%

Table 1 South African Negative GDP Growth



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In her recent address to the US Chamber of Commerce, Governor of the South Africa Reserve Bank, Gill

Marcus, noted the following about the current state of the South African economy:-

“The economy has made a fragile and uneven recovery from the recession, but the future growth prospects will

be affected significantly by global developments. Favourable growth outcomes were achieved in the final

quarter of 2010 and the first quarter of 2011, when annualised growth rates of 4.5 per cent and 4.8 per cent

respectively were recorded. However the second quarter performance had been disappointing, with both the

manufacturing and mining sectors likely to have subtracted from growth. The main driver of growth over the

past 7 quarters has been growth in household consumption expenditure, which has averaged around 5 per cent

since late 2009. However, for some time the Monetary Policy Committee of the Bank has questioned the

sustainability of this consumption growth given the slow pace of employment growth, high levels of consumer

indebtedness, and low levels of bank credit extension as well as negative wealth effects emanating mainly from

the weak housing market. Recent retail sales developments indicate that there may be some slowdown in the

growth of household consumption expenditure.” This highlights the need for organisations to be pro-active in

their response to changes in customer behaviour.

The change in consumer behavior Retailers agree that the biggest effect of the global recession has been on consumer behaviour. Many U.S.

consumers have completely, and perhaps permanently, altered their buying habits according to Canning (2010).

This means that the biggest challenge for any retailer is in interpreting consumer trends and gaining invaluable

insight to help future planning (Worldretailcongress.com, 2010). The new market situation is characterised as

the "age of thrift" which has radically changed customer purchase behaviour, and provides an environment

dominated by public scepticism and lack of trust in business and in marketing offers (ingentaconnect.com,

2010).

Thorn Blischok, president of global strategy and innovation for Chicago-based Symphony IRI Group, described

the new retail reality by stating that retailers should expect consumers to continue to make shopping decisions

through a "lens of affordability". According to a McKinsey research report it was found that in the past 2

years18 percent of consumer-packaged goods were bought at lower prices. (McKinsey Quarterly, 2010).

According to Adrian Saville the South Africa consumer is still conservative in their spending post-recession.

This is due to the fact that a lot of jobs were lost and these jobs have not been fully recovered. Research done on

consumer strategies in South Africa has shown that consumer behavioural changes brought about through the

recession may very well be permanent and irreversible as people hold onto the lessons learnt and refuse to go

back to their previous spending habits (Fusion Design, 2010). The vast majority of South Africans are

continuing to live like they are in the midst of a recession, according to research by the UCT Unilever Institute

of Strategic marketing (Advantage Magazine, 2011). The study presents compelling evidence that consumer

behaviour has changed substantively, with many respondents reporting substantial changes to their purchasing

patterns. The data reveals that 69% of consumers say they are more cautious with their spending than a year ago,

while 58% say they and their families are financially worse off than in 2010. The trend of consumers following

more frugal lifestyles can be seen in the fact that 55% say they shop in less expensive stores than before, while

68% of respondents say they look at several options before making a purchasing decision.

In our qualitative research conducted in the South African retail environment the customer survey findings

supports both the local and international trend on the shift in consumer behaviour post-recession.



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0

100

200

300

400

500

2009 2010 2011

Food

High

Mid

Low

0

20

40

60

80

100

120

2009 2010 2011

General Merchandise

High

Mid

Low

0

50

100

150

200

2009 2010 2011

Clothing

High

Mid

Low

Local Customer Findings

In our local research the customer survey findings supports our initial assumptions on the shift in consumer

behaviour over the period (2009 -2011) due to the recession.

The research findings for General Merchandise

retailers show the following trends:

An overall increase in consumers shopping at high

end general merchandise retailers between 2009 and

2010 and a decrease in consumers in 2011 compared

to 2010

An increase in consumers shopping at medium end

retailers from 2009 to 2011

The research findings for Clothing retailers show the

following trends:

Consumers shopping at high end retailers increased

in between 2009 and 2010

A decrease in consumers shopping at high end

retailers from 2010 to 2011

An overall decrease in consumers shopping at

medium end retailers from 2009 to 2011

And overwhelming increase in consumers shopping

at low end retailers from 2009 to 2011

The research findings for Food retailers show the

following trends:

A downward trend in consumers shopping at high

end retailers over the period 2009 to 2011

An increase in consumers shopping at mid-end

retailers from 2009 to 2010 and a decrease in 2011

An increase in consumers shopping at low end

retailers over the period 2009 to 2011

Figure 2 Food Retailers

Figure 3 Clothing Retailers

Figure 4 General Merchandise



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Value retailing a strategy or must? Value retail is not necessarily based on providing either the lowest cost or the highest level of differentiation. It

involves providing trade-offs of price and differentiation that are desired by the retailers target market (Berman.

B, 2011:2). According to Berman (2011:2), Value is offered through offering only the services customers either

(1) absolutely require as a condition of purchasing your goods or (2) are willing to pay extra for because they

view these services as meaningful. Successful companies typically start with a deep understanding of customer

needs in a segment and translate these needs into a value proposition. Thereafter, businesses develop their

supply chain capability to deliver on their value proposition. According to Billingtonand Nie (2009) many

companies fail to reap the benefit of their value proposition because their supply chain capabilities are

inadequate. Aligning the customer value proposition with the supply chain model is therefore critical to a

company’s competitiveness. Value occurs when needs are met through the provision of products, resources or

services, therefore value is an experience. (Billington and Nie 2009) “In a recession customers don’t stop

buying, they just stop over buying” (Armbruster, 2009). In other words a customer rationalizes the need to

purchase and what the purchase is intended for. One CEO of a well-known value retailer concludes that

customers will continue to exercise great caution when making buying decisions and will be drawn to retailers

where they can buy simpler offerings with greater value. Another Business executive states that “Retailers today

are spending more time on value strategies than on the traditional fluffy marketing campaigns”.

Figure 5 illustrates a study conducted in the US by Booz &

Company with more than 2000 participants where only 9% of

customers intended to spend at pre-recession levels on household

products, 10% on cellular phones, 11% on health and

beauty products and 18% on apparel, clothing and shoes as

of 2011. Close to two-thirds of customers (64%) stated that they

will shop at different stores with lower prices even if it is less

convenient (Berman, 2011). In “Lean Thinking” (2) by Womack

and Jones, the first lean principle was “defining value

from the customer’s perspective. From this come two critical

factors that need to be clarified when strategizing the creation of

value:

This study indicates to what degree

customer preference for value has become

the overriding factor when making a purchasing decision. This could also be symptomatic of a lack of

confidence in “pre-recession” retailing. The prevailing evidence that the recession has caused a behavioural shift

in customer shopping patterns, may just be what was needed for retailers to become more customer centric and

competitive since customers are now more stimulated by value and saving.. In our exploratory study, different

responses to the concept of value can be extracted from our customer survey and have been applied related to

our value retailing model as illustrated in our recommendations found later in this report where (1) Value is low

price, (2) Value is the quality I get for the price I pay, and (3) Value is what I get for what I give and

encapsulated in the holistic experience – through service. In our local customer survey some interesting results

in terms of customer preference to Price, Quality and Service was discovered. Figure 6 illustrates how

customers prioritised Service, Price and Quality in the different retail tiers (High-end, Mid-end and Low-end

Clothing & Footwear

18%

Health & Beauty

11%

Cellular 10%

Household 9%

Figure 5 Customer Confidence

Who is the customer and what do they value?



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retailers). In High-End retailer’s quality outweighs both price and service whereas Price and Quality are

priority and outweighs Service in the Mid-End retail tier. Price is seen as the most important priority in the

Lower end of the retail sector. Figure 7 concludes that customers prefer price and quality as the determinant

when making buying decisions and to a lesser degree, value service. In our results 18% of customers’ value

service, 48% value price and 34% of customers regard quality as important. A limitation to the research

conducted relating to our value model is that customer access cost was not factored in as part of our immediate

scope and will therefore be exluded as part of our overall discussions.

Supply Chain Supply chain is the activity that manages the flow of information, money and material across the extended

enterprise, from suppliers through the functional silos of the firm to customers (www.manufacturingerp.com)

It is made up of the people, activities, information and resources involved in moving a product from its supplier

to customer. The key activities involved in the supply chain cycle are:

Planning

Raw Material

Manufacturing

Inventory

Distribution

Warehousing

Transportation

Forecasting

Customer Service

At the depth of the recession of 2009, SCM executives were focused primarily on survival and cost cutting.

Today, as the economy slowly moves toward recovery, The attention of SCM managers is also directed at

recovery. Fortunately for logisticians, supply chain management continues to be one of the few bright spots for

retailers, including pre-, mid- and post-recession. More and more companies rely on supply chain management

as a critical component to success and a bridge to better times.(The State of the Retail Supply Chain Study

2010)

Price 48%

Quality 34%

Service 18%

Price Quality Service

Figure 7 Customer Preference

High Mid Low

service price quality

Figure 6 Service, Price & Quality Preference

http://www.manufacturingerp.com/



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As expected, on the top of the list of concerns for SCM executives is the speed of economic recovery. Retail

supply chain executives are actively and aggressively pursuing strategies to meet economic challenges, while

also seizing on opportunities to refine their capabilities, increase efficiencies, drive down costs and collaborate

with merchandising and store operations to maintain optimal shelf-level inventories. In addition to battling

economic uncertainty and supply chain challenges, retail SCM executives must handle internal stakeholder

demands and issues. These demands are varied and complex. According to the Supply Chain Study completed

in 2010 by the Auburn College of Business, the internal requirements that drive supply chain activity and

investment are: Alignment of strategies, responsive operations, continuous product availability, and rigorous

inventory control and cost management. Collectively, these internal requirements elevate the importance of

SCM. Retailers now assign greater responsibility to their SCM executives. However, supply chain teams are

required to fulfil seemingly incongruent goals. They must balance requirements for service responsiveness

against cost control, product availability against inventory rationalization, and high delivery frequency versus

transportation efficiency.

While the current business environment is not quite as chaotic as 2009, there is still no shortage of external and

internal issues that keep retail supply chain leaders awake at night. They face an uncertain economic recovery,

supply chain constraints and demanding internal customers. Integrating supply chain management across all

departments is critical in the success of any supply chain management process as tight bonds and collaboration

is formed across all departments. Agile supply chains are those that are able to rapidly respond to new customer requirements and unexpected

competitive influences. The retailers that survived the poor economy of the past 2-3 years have already

accomplished the belt-tightening and inventory streamlining needed to ensure they operate efficient supply

chains. The strategic emphasis has shifted to agility as the path to establishing competitive differentiation.

“Economic challenges are forcing retailers to get lean. At the same time, they have to

figure out how to be agile.”

Consolidation Consolidation is a business strategy intended to improve the profitability of an organization. Retailers often

consolidate at different points of their life cycle as a means to serve their markets better. The financial rationale

for consolidation is that retailers can maintain or strengthen their competitive positions in the market place by

increasing their size, thereby lowering their costs by improving their bargaining power, expanding revenues

from consumers and markets and gaining market share across channels and formats. Retailers consolidate to

pool resources together and improve purchasing power through a Centralized Buying System

(www.onyxinvestments.com). There are various forms of Consolidation as listed below:

I. Brand Consolidation

Brand Consolidation offers retailers the opportunity to streamline costs, strengthen the brand and support

profitable brand growth and expansion. The CEO of a leading Value Apparel Retailer indicates that whilst the

South African economy enjoyed the excitement and hype of the World Cup in 2010, the recession hit South

African high end retailers the hardest. When asked why, he concluded that most organizations have started

consolidating their brands to the extent where their number of stores have reduced substantially, some of the

independent and smaller retailers even closed shop. Another CEO of a leading Apparel & Home Retailer stated

“Consolidations are happening globally not only at brand level an example is Ackerman’s Comforts that no

longer exist”. Yet another CEO of a leading Apparel Retailer stated that “Companies are forced to focus on their



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core brands and to review their unsustainable brands”. He also indicated that the challenge for retailers is to

understand their customers better to be able to respond to their needs faster, having the right product and the

right quantity at the right time.

II. Centralized Buying/Procurement System

Centralized Buying/Purchasing system – Most Retailers are taking this route because it makes large single

orders possible thus bringing about economies of scale. This gives the Retailers more power to influence

suppliers and secure favourable prices and terms. As supermarket chains grow in size and in number of stores,

they develop and implement increasingly centralised controlled procurement systems (Reardon 2005). They are

all able to dictate their buying terms to suppliers who are expected to deliver products to central depots or

warehouses, where the products are then distributed to supermarkets and retail outlet stores (Gain report, 2005;

FPMC, 2003). Lower prices, larger discounts and lower transportation cost are obtained. These Retailers will

also be able to secure better and more favourable deals than companies that place small orders because of their

decentralized structures. It also enables the retailers to develop a crop of specialist buyers with technical

expertise and a deep knowledge of the market. Since the department spends all its time on purchasing, it can

monitor the changes that are occurring in the economy and monitor new products entering the market. Because

they are the specialists in the field of buying with intimate knowledge of the market, they would know the best

place to buy the best product and the best time to make the purchase. This is a competitive advantage because

retailers with a centralized buying system will have new products first.

III. New entrants into the market

Consolidation in the Retail Sector in the longer term with the arrival of Wal-Mart is likely to lead to greater

consolidation not only in South Africa’s retailing environment but also in some of the industries supplying its

stores. In particular the 120 Cambridge Store rollout would impact the spaza shops and independent food

retailers in low-income areas, and this would intensify competition particularly at the bottom end of the market

and the weakest traders would take the most pain.

IV. Centralized Distribution System

Most Retailers are going into regional distribution centres which are aimed at boosting the efficient handling of

stock to cut working capital thereby creating more profits and enabling them to compete more effectively. The

distribution channel considers the various parties for whom a product or service will travel through from the

time the product is manufactured to the point at which the end user will consume the product. Spar is the

perfect example of Centralised Distribution operation whereby much of the distribution channel is handled in

house thus resulting in greater efficiencies in the distribution channel and a reduction in costs as volume

discounts are still achievable from buying in bulk. Mass discounters, which include Game and Dion Wired

stores, shed about 800 jobs in 2010 due to the development of distribution centres, new technology and the

consolidation of workflows. The re-engineering and restructuring process was initiated in order to improve

operational efficiencies and the business’s ability to compete more effectively. (www.bizcommunity.com).

V. Supplier Consolidation

Supplier consolidation is the term used by businesses to describe the process of eliminating low capacity

suppliers in favour of a smaller number of high capacity providers. In a weakening economy, having a large

number of active suppliers operating at low capacity can be a drain both on the suppliers and on the businesses

they are supplying. Supplier consolidation is one way to combat the problems caused by such a situation. There

are several risks associated with utilizing a large number of low capacity suppliers that can be avoided by

practicing supplier consolidation. Firstly, many suppliers cannot afford to be competitive when production rate

is low. Second, reduced production speed and quality can result when suppliers are forced to lay off employees

due to low utilization. Also, suppliers often find it necessary to sell off equipment and close facilities in the face

http://www.bizcommunity.com/



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of financial troubles. The CEO of a leading Apparel & Food Retailer indicated “in terms of consolidation, we

drove our supplier base off shore which went from a low percentage to a higher percentage of direct imports”.

They have consolidated their supplier base to fewer more meaningful suppliers to allow for better pricing.

VI. SKU Consolidation

In the interest of reducing costs and streamlining storage and handling, many organizations have substantially

slashed the number of SKU’s (stock keeping units) they use. They have also re-engineered their products to

their specification.

Recommendations In response to our problem statement very clear evidence emerged from our literature review as well as our

international immersion that the behavioural shift in customers will have a definite impact on how retailers

should conduct business. The retailer’s response therefore should be to decide whether a value strategy, low cost

or differentiation strategy is most suited or a combination of these.

Implementing a Value Compass

A value compass is an effective tool to evaluate and assess the retailers unique value proposition through

plotting its strengths on a scale of 0 – 5 (where 0 = low impact and 5 = high impact)

Value Compass as adapted from JC Williams 2011

The value compass will give a clear indication of an organisation’s key strengths and where the organisation’s

value strategies are more focussed and also give insights to opportunities available to drive further value.

1. In response to the customer demands for value, our recommendations therefore include the

following:



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The following key components form part of the Value Compass:

Measure Description

Ease Refers to how accessible stores are to customers

Economical Refers to how affordable the pricing structure is

Experience Refers to the overall in-store experience

Ego Refers to the emotional impact the brand has on you

Examples of how to utilize the Value Compass:

Canadian Tire stores are located within a 15 kilometre radius of their customers. The company will

therefore rate 5 on ease of access to shopping

Wal-Mart is price focussed and will therefore score 5 on price.

Local retailer Stuttafords will score 5 on the Ego axis of the compass, and

Value Retailer Pep will measure 5 on the Pricing or Economic axis.

Research has shown that where organisations do not have clear differentiation on any of the above, this could

lead to mediocre performance in relation to market trends. Organisations therefore cannot be competitive in all

four areas as this is not sustainable. It is therefore recommended that organisations clearly define their point of

differentiation in one or two of the above 4 areas as key value drivers in the organisation and integrate this into

their business strategy.

This value compass can be used as a responsive tool for retailers with a current value retailing

model during a low economic period or it can be used as a conceptual tool to determine future

strategies.

Implementing or amending a Value Retailing Model

For the purpose of this study we will use the conceptual model of Value Retail developed by Berman (2010) that

is based on the following measures:

In the above model Value can be viewed as benefits divided by costs, whereby benefits include results

(functional aspects of products), as well as process quality (customer services). Costs include a products price

as well as access cost (negative customer experiences) (Berman, 2011:3).

Results

The concept of results extends beyond the product concept and focuses on solutions as opposed to basic product.

The focus for results must be on delivering value to the customer and is achieved through various offerings

including:-

Designing sophisticated product ranges that has utility and functional features, advantages and

benefits i.e.

𝑽𝒂𝒍𝒖𝒆 =𝑹𝒆𝒔𝒖𝒍𝒕𝒔 + 𝑷𝒓𝒐𝒄𝒆𝒔𝒔 𝑸𝒖𝒂𝒍𝒊𝒕𝒚

𝑷𝒓𝒊𝒄𝒆 + 𝑪𝒖𝒔𝒕𝒐𝒎𝒆𝒓 𝑨𝒄𝒄𝒆𝒔𝒔 𝑪𝒐𝒔𝒕

2. As a response to retailers whose current value retailing model is ineffective or to retailers who do

not have a current value retailing model we recommend the following:



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o Educational Toys –delivering on its purpose of educating your child when being played with.

o Organic foods – that seeks to address health risks posed by many processed foods.

o Producing innovation clothing lines that limits the amount of time wasted in doing laundry.

o Innovative technology in cars – Mercedes Benz park assist – which can park itself.

Process Quality

This concept refers to positive customer experiences. There must be a continual assessment of the customer

experience. The Moment of Truth is the point at which the customer interacts with the business and the value

offered is a determinant of whether that customer is retained or lost. Process quality concepts include:-

High Level of Support

There must be a commitment to the product offering and business must be prepared to offer the

customers efficient mechanisms to deal with after sales service requirements. IKEA in Canada sell

furniture pre-packed in flat boxes that require DYI installation. However, they also offer the services

of trained installers as an alternative.

High Quality of Sales Person Interaction

There must be a dedicated service offering in specialised department stores i.e. House & Home and

personal shopping at Stuttafords. Knowledgeable sales associates with excellent product knowledge

further enhance the shopping experience.

Successful service recovery efforts (what the retailers will do when things go wrong)

Retailers must be prepared to support their brand and the commitment to addressing customer service

and product failure issues with speed and efficiency. This will ensure that customers remain loyal. A

fair returns policy also ensures customer loyalty.

Short Check-out Queues

Management can monitor customer flow and staffing can then be structured to ensure that the flow of

customers at check-out points is efficient and that the wait for customers is minimised. Self-check-out

cash points offer the customer the opportunity to scan and pay for their own purchases as used in Wal-

Mart.

High availability of items advertised

Stock management in response to actual sales and forecasts for promotion periods is key to ensuring

that the correct quantity of advertised products are available at the time that the customer is in the store.

SEARS provide customers with access to browsing through catalogues electronically while in the store.

Simplicity

H&M does this well in that they keep it simple from signage to labels and ticketing. There is no

printed signage however signage is displayed in the form of writing on the walls. This writing is in line

with the store's young and vibey image. There is no confusion with customers as to what they are to

expect in relation to price competitiveness. There is a strong focus on private labels that speak to low

cost fashion.

A company’s sustainability strategy also adds value to the customer in terms of brand loyalty.

Customers are drawn to companies that employ more sustainable strategies. Environmental awareness

and responsible green initiatives show customers that if retailers care about their environment, then

they will surely care about their customers.

Providing recipe solutions

At Wegmann’s in Pennsylvania in the USA they have a magazine called Menu that offers customers a

variety of recipes. The Magazine is offered at no cost to the customer.



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Price

Price refers to the final purchase cost and is usually the primary competitive advantage in a low-cost strategy.

The pricing structure must offer the best value to the customer and must include:-

Delivery charges and credit terms

The full value offering to the customer on price must include terms and additional charges. Retailers

may be competitive on prices, but smart shoppers will also consider additional charges to ensure that

the entire offering has better value than any other retailer

Promotional Strategies

Retailers must create new and innovative promotional strategies like link savings. Apparel retailers in

Canada (Sport Check) offer a “Buy 1 and get 50% off the second item.

Everyday Low Pricing on volume core items

Wegmann’s advertise the lowest price on certain products and advertise that these products will remain

at these low prices for the rest of the year. Costco monitors their competitor’s pricing every week and

adjust their pricing structures accordingly to ensure that their prices are the lowest prices.

Integrity Pricing strategies (standing your ground against bargain hunters)

This pricing policy is employed by Leon’s Furniture. They do not negotiate or offer discounts to

customers as they believe that their price offering is the best value that they can offer their customers,

even though it may not be the lowest price in the market.

Structuring Packaged Deals

Companies like Leon’s Furniture offer promotional deals and allow the customer to structure a deal

that only requires payment after 2 years. Many car dealerships in Canada offer similar structured deals.

Pricing differentiation can effectively reflect greater value for customers

This requires a negotiation for better prices with your suppliers, reducing gross margin and offerings of

value packs for certain products ranges. The value offered by Costco Wholesalers in Canada is the

lowest price, but the best quality. Product ranges must offer the best quality and an assortment of

choice.

Customer access cost

Customer access Costs includes negative customer experiences. Stores that are inconveniently located with little

or no public transport accessibility has high access cost.

Ease of finding items

Large stores require extensive in store browsing store maps at strategic points in the store (entrance,

back aisles) can ensure ease of access to products. The layout of the store can further encourage

random and impulse shopping. Liquor Control Board Ontario (LCBO) has signage indicating the area

for international wines to create ease of shopping for customers as it clearly differentiates not only by

product but by geographical location of imported product.

Communication

Headset and mobile communication between store staff will reduce the number of disruptions between

customer interaction and staff. This will promote enhanced customer interaction and speedy resolution

to customer queries.

Inventory Scanners must be provided and highlighted on the sales floor (especially in foods) to assist

customers with real time price enquiries.

Tailored assortments cater to customers’ demographics and needs.



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Online channel and home delivery

On-line advertising creates visual stores and allows customers to use their cell phones and e-mail to

shop. A multi-channel strategy can be effective in being a low cost operator

A fun in store experience and adequate parking.

One of the LCBO stores is located in an old railway station and the store retained the history and

original building to create both a shopping and history experience for the customer. Pictures of

celebrities who shopped there are proudly displayed for customers to look at.

Our recommendation is that the above value model be integrated with retailers existing retailing strategies or be

used to develop new value strategies to differentiate themselves from their competitors.

Business strategy outlines the plan to achieve competitive advantage in the marketplace. The supply chain organization must develop its own strategy to ensure supply chain operations support overall company goals.

“An exceptional supply chain must be tailored to the customer experience you’re trying to

have.”

Develop a seamless and efficient supply chain

Dominion Warehousing and Distribution in Toronto, Canada, have invested in technology that provides

inventory management solutions for real time access to inventory. Dominion’s supply chain success is due to

the increased use of automated systems and multiple user applications vs. single user applications. Their

centralised distribution system allows their customer variable space costs as you only pay for the space you

occupy, unlike when you own the warehouse.

Figure 6 Supply Chain

3. Our recommendation to optimizing supply chain capabilities due to the structural shifts in supply

chain post-recession is listed as follows:



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Outsourcing warehousing and distribution

Companies can choose to trim their warehousing and distribution costs by outsourcing to a third party. When

outsourcing the distribution and warehousing, you stand a better chance of saving costs and that becomes a

solution to better serve your customers.

It reduces over ordering and controls redundant SKU’s.

It increases inventory control

It reduces warehousing & distribution costs due to bulk shipments

Improves delivery costs

Eliminates rush/expedited or duplicate orders thus reducing the carbon footprint.

Improved stock availability

Satisfied customers

Network flexibility

Retail outlets can receive fewer shipments with smaller quantities of each item

Order cycle time is reduced

Value added services can be performed more easily

Improved delivery time

Effective collaboration

Proper control over inventory

Increased sales

Increased service levels

Outsource Management of Supply Chain

Business can own the property and rent it out to an outsourced logistics company. They can then pay

the logistic company fees to run their supply chain. This will allow the business to focus on what they

specialize in which is to grow the business.

Brand still can be marketed

Inefficiencies can be eliminated

Centralised Distribution

Efficient handling of stock reduces working capital and increase profit

Proper control of inventory

Stock availability

Direct control over their SKU’s

This can help on consolidating the SKU’

Optimize cash and inventory management systems to manage costs

Use Information Management systems to improve Gross Margins and inventory productivity pre and

post-recession.

Invest correctly in technology and on the right projects.

Remain laser focussed on core customer and value needs.

Periods of low growth is also an opportunity to find alternative income sources i.e. subletting unused

and unnecessary space, this can include service vendors like dry cleaners, in-house bakeries,

pharmacies, jewellery shops, tailor shops, electronic repair services etc. (Berman, 2011).

Innovation - Microsoft spends money in research and development even in tough times so that they can

deliver innovative products in their market, which demands innovative products.

Monitor Information Systems

Put transport management systems in place

Use improved IT systems to perform information collaborations

Use product monitoring systems, which includes monitoring new listed products

All suppliers can be on EDI and SAP



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Centralized Buying

All buying divisions can be centralized and one buyer should be responsible for one category

It makes procurement easy

It gives the business competitive advantage

Price negotiations – to add that to customer value

Proper promotions planning

Lot of risk involves due to incompetence of an individual

Bad business decision

SKU Consolidation

Retailers consolidate SKUS to alleviate shopper confusion. It also allows better facings to brand merchandising

(better facing for the lines that sell), provides improved inventory control, high profitability/cost savings. It also

allows shrinking shelf space so to improve trading density. It also allows private labels to be better exposed. As

an example, Canadian Tire in Canada constantly looks at ways to improve their range of their assortment and

constantly look at ways to remove SKUS that do not sell.

Supplier Consolidation

The most important reasons for consolidating your supplier base are performance improvement of the supplier

base and the internal organisation. Fewer suppliers results in improved resource allocation within the

organisation to manage the supplier base. A smaller supplier base also allows more resilience during a

downturn in trade. The time to reduce your supplier base is during a down turn, when materials’ resourcing is

reduced (Jamie Lidell, The trend towards Vendor Consolidation)

4. Our recommendations on how to become a low-cost retailer through consolidation are listed

below:



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Implementation Plan

Retailers need to examine their ability to increasingly adopt a low cost or differentiation strategy through

honestly assessing their capabilities (Berman, 2011)

Ensuring low cost operations is the primary driver in ensuring sustainability since costs are controlled by

management.

•Conduct analysis on business's existing value strategy

•To be used pre and post Strategy planning

•Process to be owned by senior leadership

•To be measured though sales perfomance, marketshare, consumer confidence levels in brand

Value Compass

•Use to analyse key value strategies in conjunction with value compass

•Integrate in strategic planning process

•Owned by Business Leaders, Brand managers, Buying, Planning, Operations and customer facing staff

•To be measured by Sales performance, marketshare and customer serivce indexes

Value Retail Model

•Assess supply chain efficiencies and establish cost saving opportunities

•Complete as part of ongoing business efficiency reviews

•Owned by supply chain executives and driven by the board

•To be measured through inventory management, on floor availability and cost savings

Supply Chain

•Assess the need for consolidation opportunities to drive costs, improve brand presence and drive efficiencies

•Complete as part of strategy planning and ongoing review

•Owned by senior leadership and driven throughout the organisation

•To be measured through improved profitability, efficiencies andprocess management

Consolidation



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Conclusion The above report discussed the impact of the recession on the South African retail environment. It is evident

from research that the biggest impact the recession had, both locally and internationally, was on consumer

behaviour and spending patterns. This report further shows that consumer behavioural changes brought about

through the recession may very well be permanent and irreversible as people hold onto the lessons learnt and

refuse to go back to their previous spending habits. As a result of the recession a need arose for fundamental

changes in 3 key areas, namely increasing dominance of value retailing, structural shifts in supply change and

consolidation. The retailer’s response therefore should be to decide whether a value strategy, low cost or

differentiation strategy is most suited.

This study highlighted the degree to which customer preference for value has become the overriding factor

when making a purchasing decision. There is a need for retailers to become more customer centric and

competitive since customers are now more stimulated by value and saving. Value retail however is not

necessarily based on providing either the lowest cost or the highest level of differentiation. This research

provides an alternative view on the concept of value, and recommends that in response to the customers demand

for value the implementation of the Value Compass and the Value Retailing equation is considered.

This report makes further recommendations relating to optimising supply chain capabilities and consolidation.

Several low cost or differentiation strategies are presented in the form of recommendations that retailers can use.

Our report shows clearly the need for Retailers to examine their ability to increasingly adopt a low cost or

differentiation strategy through assessing their capabilities. Ensuring low cost operations is the primary driver in

ensuring sustainability and providing real value to the consumer.

In conclusion the change in consumer behaviour will remain into the foreseeable future. It is therefore strongly

recommended that retailers review and adapt their strategies related to Value retail, Supply Chain and

Consolidation to be successful companies in the ever changing South African retail landscape.



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Appendices Appendix 1 Questionnaire for Business Executives and Analysts

Business Executives

No Question

1. One of the most significant results of the recession is the change in consumer behaviour. How significant

is this for your company?

2. Do you think customers have changed the way they shop permanently (even after the recession)

3. Has your business changed the way it is doing business post-Recession? With Particular focus on Supply

Chain, Value Strategies and consolidation.

4. Do you think Companies are forced to change their strategies with some of the big players entering the

market place?

5. Was there any temporary mechanism or strategy that was used to help your organization to cope with the

recession?

Analysts

6 Did the World Cup provide South Africa with an opportunity to buffer the effects of the recession on the

Retail Industry?

7 How severely was the South African economy and in particular whole and retail affected by the

recession?

8 Has the retail landscape changed since the recession?

If so, what has been the major area of change?

9 Do you think Companies are forced to change their strategies with some of the big players entering the

market place?

10 Do you believe that the Retail Industry is agile enough to adapt to changes in the economy and ensure

sustainability in a recession?



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Questions

1. Have you changed your shopping pattern in the last 2 years? YES NO

2. Did the recent recession change the way you shop? YES NO

3. If Yes, where did you make the most changes in your shopping patterns? Food Clothing Furniture

Retailers

Where did

you shop in

2009

Where did you

shop in 2010

Where are

you shopping

in 2011

Is it due to

Service?

Is it due to

price?

Is it due to

quality?

Food Retailers

Woolworths

Pick n Pay

Shoprite

Spar

Checkers

Other

Apparel

Woolworths

Edgars

Mr Price

Foschini

Truworths

Other

General Merchandise

Makro

Game

Other

4. Do you buy Private Labels or Branded Products?

5. Research has shown that consumer behaviour patterns have changed for good, does this apply to you?

Fast Forward ® Customer Survey – July 2011

Appendices 2 Customer Survey



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Appendix 2 Customer behaviour trends post-recession

Consumer behaviours and trends emerging

from the recession

Further trends that will drive consumption

Recession Secret Shopper

The authors identified the above as skilled

bargain seekers.

Demand for simplicity

Consumers are seeking uncomplicated, user-friendly products

and services that simplify their lives. Downturns are stressful

and typically increase people’s desire for simplicity.

See-Saw Consumer

The above group of consumers is in

perpetual search for bargains for their daily

needs, as well as investment items that will

keep their value for a long-term.

Focus on the boardroom

Outraged by corporate malfeasance, people are punishing

companies for unethical governance. The financial crisis has

put a spotlight on corporate governance, in particular the

malfeasance of some executives and the complicity of

companies’ boards.

Austerity Chic

The above term was adopted largely by the

“no-frills affluent”, a new breed of middle-

class savvy consumers that are expert

bargain hunters, consciously shopping in

discount stores and who manage their

diaries around the sales and bargains to be

had.

Discretionary thrift

Even those who do not need to economize are pursuing a

more wholesome and less wasteful life. Increasingly, though,

many affluent consumers are economizing as well, even

though they don’t always have to.

Lipstick affect

Lipstick effect is the theory that when facing

an economic crisis, consumers will be more

willing to buy less costly luxury goods.

Instead of buying expensive fashion, women

will buy a lipstick-a little luxury treat that is

immediate and affordable.

Mercurial consumption

Easy access to information and friction-free purchasing is

making consumers ever more agile—and less loyal.

Domestic God/dess

In a recession, homeowners are electing to

redecorate rather than relocate. They are

embarking on home improvement projects

and doing it themselves rather than

employing professional decorators.

Green consumerism

Consumers are for - going pricey green products and instead

are cheaply and discreetly reducing waste

Individuality

The globalization of brands has created an

opposing trend, the search for bespoke,

personalized, and individualized products

and services

Decline of deference

The decline of deference is also driven by mounting

scepticism about the quality of information provided by

traditional sources of authority such as businesspeople,

economists, doctors, and the clergy. Ethical consumerism -

Altruistic consumption and spending, such as eating cage-

free eggs and giving to charity, are falling as people focus on

their own dire situations.

Extreme-experience seeking

Expensive, frivolous, or risky recreational experiences, is

quite common post-recession.



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Appendix 3 Executive and Analyst name references

Position Company

Company Executives

Chief Operations Executive Edcon

Executive Edcon

Executive Edcon

MD Furniture City Ellerines Holdings

GM Gauteng Region Pick and Pay

CEO Woolworths

Group Director Retail Woolworths

Group CEO Mr Price

Apparel MD Mr Price

Financial Director Apparel Mr Price

CEO Leon’s Furniture (Canada)

Vice President Marketing Canadian Tire (Canada)

CEO Dominion Warehousing and Distribution

CEO Comet (London)

Head of Logistics Allied Bakeries (London)

Analysts

Chief Investment Officer Canon Asset Management

Chairman British Retail Consortium

Chairman and Founder J.C. Williams Consulting

Analyst Price Waterhouse Coopers Canada

Director of Consumer Insights Nielson Canada



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