Retailers at the crossroads: how to develop profitable new growth strategies

Many industries have been hit hard by the recent recession, but none more so than the retail sector. As retailers have struggled, however, a few major chains have found ways to increase both earnings and sales. Companies such as Staples, Bed Bath & Beyond and Office Depot have consistently posted top‐quartile earnings growth compared to their peers. What – if anything – are these companies doing differently from their competitors? Our research and client experience indicate that to excel in today’s highly saturated retail markets, companies need to abandon geographic expansionism and initiate new management strategies based on profit‐driven product selection and customer targeting. At the heart of this shift is the introduction of financial discipline into the marketing process. Retailers must be ruthless about pulling unprofitable products from the shelves and avoiding high‐volume but low‐profit customer segments. In this article, we outline three management strategies every retailer must master to maximize profits. First, retailers must expand aggressively into new markets. Once they saturate these markets with outlets, they can sustain their earnings growth by improving the mix of products sold. Finally, as gains from improved product mix level off, retailers need to alter their promotion, advertising and merchandising strategies to better respond to local market preferences. Unfortunately, many retailers fail to progress beyond the empire‐building phase and can end up destroying value.