Zellers reorganizes stores, adopts EDLP strategy - Brief Article

DSN Retailing Today, Feb 25, 2002 by Mike Duff

AURORA, ONTARIO -- Zellers' intense focus on the Canadian mother--its core customer--has led it to make many merchandising changes in the past several years. While lots of these modifications have been significant, nothing compares to the radical changes it's going through now.

Bent on creating even greater appeal to the shopping mom, Zellers has gone so far as to reconfigure the entire company, management and all, by shifting toward an everyday low price structure, adjusting assortment and modifying its marketing approach with advertising dollars, moving from circulars to electronic media.

In line with its new structure, Zellers has reshuffled its executive suite by adding a senior vp of merchandising to its existing pair of senior vps who cover marketing and store operations, respectively. All of them report to president Thomas Haig.

Perhaps more important, said Bruce Dinan, newly minted senior vp of merchandising, the company has reconfigured the buying/merchandising function, eliminating its version of divisional merchandising managers, called senior buyers at Zellers, so that buyers now report directly to the gmm. The company also has expanded the number of gmms to 13 in an effort to narrow product focus, while putting gmms in closer touch with customers and day-to-day operations.

The company's move to everyday low pricing reflects Zellers' consumer research, which has concluded that the retailer's core customer wants to find everyday needs at compelling prices rather than wait for a promotion. The EDLP shift doesn't mean Zellers intends to get into a price battle with Wal-Mart Canada. The retailer did that when Wal-Mart first entered the country with unfortunate financial consequences. Rather -- like other major supermarket chains in the United States -- Zellers has determined its customers evince a degree of price flexibility and that it can work within shopper perimeters.

Zellers intends to promote a "fair price" strategy that will reflect a cost/value equation. Taking into consideration Zellers' brand strategy -- with labels that include Martha Stewart, Cherokee and Gloria Vander bilt, among others -- it will up-market store aesthetics and initiatives to make the assortment fit the core customers' needs more closely, all in relation to the dollars and cents charged.

In other words, Zellers wants to offer more non-cash benefits that suit the customer at a price that makes shoppers feel they're getting a good deal for the quality of product and shopping experience. "We'll transition EDLP into more areas like toys, where we think our customers prefer to see a fair price every day," said Dinan.

Naturally, as the company shifts to more EDLP, circulars become a less attractive advertising vehicle. This doesn't mean, however, that Zellers is cutting its ad buy Instead, the company will expand an already significant investment in electronic media, spending money that has been going to circulars for more radio and television commercials.

Marketing is critical to any shift from promotional to EDLP, said Mark Neckes, a professor and former marketing department chairman at Johnson & Wales University. Customers have to feel the everyday value compares favorably with the benefits they gained in shopping the circular. "If the retailer doesn't meet or exceed the circular price as perceived, the customers say 'What's going on here?' The retailer can lose focus on the target and get less loyalty" he said.

The shift to EDLP will be gradual and applied on a case-by-case basis where consumer research suggests a trial will be successful, said Dinan. Whether Zellers will shift to storewide fair pricing has yet to be determined. The company, which has been both consistent and judicious in changing its approach to business over the past few years, will continue to advance EDLP and its other key initiatives to the degree that customers accept them.

EDLP has taken firm root in Canada, said Jamie Sprang, an analyst with Canaccord Capital Corp. "That's something that's growing in terms of retailers who are doing it," he said. Wal-Mart has popularized EDLP, but The Bay, the department store complement to Zellers in The Hudson Bay Co.'s portfolio, has an EDLP component, he said, and Sears Canada recently announced an initiative to offer an assortment of products with a constant, sharp price position.

Short term, he said, many Canadian retailers are interested in seeing what opportunities EDLP affords in a marketplace where Wal-Mart's success suggests consumers have accepted it, but the long-term prospects for any individual store chain can't immediately be determined.

Merchandising initiatives also are part of Zellers overall effort. The company has added major appliances to its stores alongside electronics, which also has expanded with the addition of products, such as big-screen televisions, and has elevated the top-end price points into the C$1,000 (US$629) range.

Dinan said that by broadening the selection, Zellers had eased the competitive margin impact, so the retailer is more optimistic about the category than some U.S. broadliners. Adding appliances was relatively easy for Zellers as it tapped into the distribution system of The Bay Appliances, such as the company's Neighborhood Market food operations, will be an addition to remodeled stores.