Department Store Industry

Department Stores: Big Lots and The Retail Industry

Michael Martinez

Business

Department Stores: Big Lots and The Retail Industry

I. Problem Identification

This paper seeks some of the major developments in the strategies of Big Lots Inc. in order to improve their market share. The main problem that this paper would like to investigate is the kinds of marketing strategies that the company employs in order to achieve greater market share. This paper would also assess the kind of competition and market structure that exists in the retail industry and how this is addressed through the strategies of the company. In addition to this, this would also try to probe on some of the financial strategies that the company used in order to improve their cost structure and manage their cash flows.

II. Retail Industry Analysis

Industry Overview

Department stores are under the retail industry. They provide various products, which they market for retail. The outlook of the retail industry is currently not that promising. The main reason for this negative outlook for the retail industry is the current level of oil prices, which would inflate the level of cost of inventory associated with the increase in the level of prices of goods that retailers are selling. In fact, the August 30, 2005 surge of oil price per barrel, which reached 70 dollars per barrel, affected the retail industry a lot. The Standard and Poor's stock price index has shown that the retail industry suffered a lot from the increase in the price of oil (Hovanesian, 2005).

The industry is also having problems in terms of their accessibility. Consumers are becoming more and more busy thus relying more on online purchases rather than visiting retail stores. It is estimates that department stores would depend on old shoppers for their profit and sales. Department stores would become more dependent on old shoppers that new and young shoppers on the next five years and this is according to Verdict Research. The older people are the fasting growing and biggest consumer segment for department stores and the retail industry ("Retail news brief: Over 55s fastest...," 2004).

Since 1992 until 2004, retail stores are estimated to have increased their sales to 90 percent. This success however is not present for department stores, which has only grown 3.5 percent in sales. If the sales would be adjusted with rate of inflation, department store sales and revenues are estimated to have plunged by around 23 percent ("Retail news brief: Over 55s fastest...," 2004). Department stores are therefore really hard pressed to innovate in order to improve their sales.

According to the Unity Marketing, department store revenues fell from 88.72 billion dollars in 1993 to only 88.23 billion dollars in 2003. This is a 0.5 percent decrease in the level of sales of department stores. Despite the fall in sales, department stores are still the number retail lines in nine important consumer goods in the market. One of the most important lines for department stores is the luxury fragrances and beauty products. This means that one of the important markets for department stores today is the luxury goods. According to analysts, the success of department stores today would highly depend on the ability of these retailers to respond to the needs and desires of their luxury market and their luxurious consumers ("Luxury department," 2005).

The department stores are declining because of the inability of these retailers to respond well with the needs of the market. Consumers are finding department stores quite boring. In addition to these, there are also complaints regarding lack of customer service and the products are also the same and not evolving to respond to the needs of the customers. Accenture business analysts have pointed to the fact that department stores have increasingly lost sight of their consumer base as 'customers' with specific needs (Tsiantar, 2006).

The industry players are starting to respond to the decline of department stores through focusing on specific niche market. Size alone in the retail industry would not assure success for the company. The capacity to maintain stability in the industry is now found through servicing a specific niche market. The industry is now composed of those catering to the high-income and luxury products such as Neiman Marcus and on the other hand is Wal-Mart, Big Lots, and Target catering mostly to discounters (Tsiantar, 2006).

The industry is therefore highly competitive right now. With fewer people making their way to department stores, the industry is filled with players all struggling to maintain market share through innovative strategies. The retail industry however is unusually hard to penetrate. Despite the high level of competition among the players in the industry, new players are finding it hard to stay in the industry because of the size of the players. One of the strategies of retailers right now is expansion in almost all cities across all states. This would enable them to capture as much market as they can. The industry players' size is one of the important barriers to entry that should be considered. With the size of the main competitors and the increase in the number of their stores, new players are finding it hard to enter the industry.

The industry is also suffering from the problems of substitutability of products that they are offering. Each department store is offering different lines of products that are in direct competition with other products. This is therefore creating an industry that is moving towards price competition. Target and Wal-Mart for example are carrying almost the same lines and therefore there is very high substitutability. This is one of the perceived threats in the retail industry.

One of the current strategies that department stores are trying to initiate in all levels is the greater degree of differentiation. The target is to provide goods and products for their consumers that are unique to their department stores. This in response to the falling sales of department stores due to the lack of product evolution and changes that would cater to the changing tastes of more sophisticated consumers.

The falling profit of department stores signal the fact that there are indeed lots of problems within the industry and this is affecting the level of competition within the industry. With problems of inflation, increase in oil prices