Applied Management Analysis of Ross Dress for Dress

Ross Dress for Less: Applied Management

Understanding how an organization works means understanding what truly motivates people. There are certain fundamental consistencies that form the foundation for the behavior of all individuals that can be identified and then modified to reflect individual differences (Robbins, 2001). In this regard, the management at Ross has set a clear course for the company, one that is focused on providing its customers with a sense of value in their overall shopping experience.

Customer Relationship Management (CRM) is “a corporate philosophy because it is a fundamental approach to doing business. That approach is to be customer-focused and customer-driven, running all aspects of your business to satisfy your customers by addressing their requirements for products and by providing high-quality, responsive service” (Seybold, 2002, p. 3). The objectives of CRM are fairly straightforward (Seybold, 2002, p. 4), to acquire new customers, to retain the right existing customers, and to grow the relationships with existing customers. This paper will illustrate these objectives being put into effective action through the management philosophy of Ross Stores, Inc.

Review and Analysis

Company History and Overview. From 1957 to 1982, Ross did business as a small, family-operated junior department store chain in the San Francisco Bay Area. In 1982, Stuart Moldaw and a group of investors acquired the six-store chain and converted it to the current off-price format. Ross Stores, Inc. went public on August 8, 1985. The Company had 593 stores in operation as of April 3, 2004, as compared to 524 stores at the end of the same period the previous year. The average new store utilizes approximately 30,000 gross square feet in a self-service format. They are conveniently located in community and neighborhood strip shopping centers in heavily populated urban and suburban areas.

Ross is an off-price retailer that offers “first-quality, in-season, name brand and designer apparel, accessories and footwear for the entire family at everyday savings of 20% to 60% from department and specialty store regular prices” (Ross Stores, 2004). Ross also offers substantial savings on a wide range of merchandise including fragrances, items for the home, bed and bath merchandise and accessories.

The current stock value of Ross is shown in the table and graph below:

Table 1. Stock Price & Volume

Recent Price

$30.69

Trade Date

4/14/04

52-Week High

$32.86

52-Week Low

$17.90

52-Week Change

66.4%

YTD Change

16.0%

Avg. Daily Volume Last 10 Days

1,286,030

(Ross Stores, 2004).

Five years ago, department stores had 21.5% of the retail market, a figure that fell to 18.7% in 2002 with some of the share going to discounters. Off-price retailers have swallowed up a good portion of the difference. Retailers such as TJ Maxx and Ross Dress For Less have built their own distribution and sourcing networks, a move which permitted them to expand nationally. Special merchandise is now made just for off-price merchants, which helps to keep their inventories consistent (Forbes, 2004). Off-price retailers grew at a compounded annual rate of 6.5% between 1998 and 2002, while the U.S. apparel market as a whole shrank by about 15%. The off-price market segment accounted for around $13.7 billion of the $162.7 billion apparel market in 2002.

Unlike department stores, off-price retailers take limited fashion risk, minimizing their markdowns and offering more stable gross margins. This market segment has also begun attracting more upscale clientele, encompassing customers who have shifted at least a portion of their apparel dollar away from the department stores. Surprisingly, more than half of all off-price shoppers earn more than $49,000 annually (Forbes, 2004).

Management Formula. The Ross management approach is fairly simple and straightforward. They sell brand-name clothing at up to 60% less than department stores. However, while the formula may be simple, the execution requires a complex dance with both partners and suppliers. Over the years, the successful discount retailers have established their own sophisticated distribution and sourcing networks (DiCarlo, 2003). Some analysts say that Ross’s winning formula is actually a struggling economy, combined with a renewed focus on selling nationally known brands. They emphasize that the store caters to shoppers who are truly interested in a treasure hunt (Steen, 2002).

As the economy soured over the past few years, consumers became less and less willing to pay full price at department stores. Customers are focusing more on price than on convenience and service. As a result, the off-price retail sector, which includes companies like TJ Maxx, Stein-Mart, and J.C. Penney, as well as Ross, have enjoyed a compound annual growth rate of 6.5% from 1998 to 2002, versus a loss of 15% for the general department store category (DiCarlo, 2003). Analysts believe that the store’s appeal to bargain hunters will stand it in good stead, even when the economy recovers (Steen, 2002).

Customer Relationship Marketing. Personalized marketing is one term for simply offering a customer specific products for his consideration based upon what the retailer already knows about the customer. For most of retail history, even well into the 20th century, this personalized knowledge was exactly how marketing was normally practiced (Gillenson, 2000). Today, the buzzword is customer relationship marketing.

Ross truly believes that it pays to focus on specific segments, or communities, of individuals, and to meet their changing needs over time. Every company wants to develop loyal customers who buy consistently over time and who will ignore the pleas and platitudes of competitors. Ross knows that customer loyalty is very important. Customer satisfaction is one way that Ross measures customer loyalty. A satisfied customer, according to most research, tends to remain more loyal to a product or a store than an unsatisfied customer (Bailey and Schultz, 2000).

Competition. Of course, Ross has stiff competition. TJ Maxx, the world’s largest discount clothing company, is also having a very solid year. The two companies were essentially neck and neck in 2003 in same-store sales growth, which is a key retail metric that measures sales for stores that are open at least one year. By this measure, TJ Maxx was up 1% while Ross’s same-store sales were flat. TJ Maxx shares were up 9% in 2003, but under-performed the growth of Ross shares, which were up 24%. Ross’ five-year revenue growth rate is 11.5% (DiCarlo, 2003).

Between the two companies, they have nearly 2,600 stores, a number that is expected to eventually grow to over 4,000 stores. They have combined sales of $17 billion ($13.2 billion for TJX and $3.9 billion for Ross). Both companies are increasing their square footage at a combined rate of 10% to 12% annually, buying back their own stock at a rate of roughly $200 million to $250 million per year and paying a dividend (Forbes, 2004).

In order to effectively deal with its competition, Ross carefully targets its promotional efforts to its specific market segment – value-conscious women and men, aged 25 to 54, with middle to upper-middle income levels. About 80% of customers are women, shopping for themselves and for other family members. Brands are important to the Ross shopper, who enjoys the “treasure hunt” aspect of looking for a bargain. Ross shoppers average about 3 shopping trips a month (Ross Stores, 2004).

Ross states its mission as offering competitive value to its target customers by focusing on four key strategies: achieving an appropriate level of recognizable brands and labels at strong discounts throughout the store, meeting customer needs on a regional basis, delivering an in-store shopping experience that reflects the expectations of the off-price customer, and managing real estate growth to increase market share in major markets. The company strongly believes it gains a competitive advantage by offering a wide variety of recognizably branded merchandise, current and fashionable, within each of its merchandise categories, in an attractive and easy-to-shop environment (Ross Stores, 2004).

Merchandising. Ross stores generally receive new merchandise from three to five times each week. Buyers for Ross review the merchandise assortments weekly, a practice that enables them to respond in a timely fashion to merchandise trends and purchasing opportunities in the marketplace. Ross’s emphasis on nationally recognized name brands reflects management’s conviction that brand-name merchandise sold at compelling discounts will continue to be an important determinant of its success.

The company believes that its ability to effectively execute certain off-price buying strategies is also a key factor in its success. Ross buyers purchase later in the merchandise buying cycle than do department and specialty stores, enabling them to take advantage of imbalances between retailer’s demand for products and manufacturer’s supply of the products. Ross waives advertising privileges for individual brands. It offers no rebates, margin protection or coop advertising support.

Neither does the company require that manufacturers provide promotional or markdown allowances, return privileges, split shipments, drop shipments to stores, or delayed deliveries of merchandise. Ross takes pride in doing business very quietly, but aggressively. Over the past ten years, Ross has quadrupled the number of buyers it uses to 200. Those buyers are in daily communication with over 4,000 manufacturers to ensure that Ross does not miss an opportunity (DiCarlo 2003).

Most of the merchandise that Ross offers in its stores is acquired through opportunistic purchases created by manufacturer overruns and canceled orders during and at the end of a season. These are referred to as closeout and packaway merchandise, purchased with the intent to store it in the company’s warehouses until a later date. Packaway purchases are an effective method of increasing the percentage of prestige and national brands at competitive savings within merchandise assortments. It consists mainly of fashion basics and is not usually affected by shifts in fashion trends. During 2000 and 2001, the company implemented enhanced analytical processes for regionalized merchandise buying and allocation. The goal is to fine-tune the merchandise mix and to raise gross profit margins and sales productivity (Ross Stores, 2004).

The typical Ross store is designed for customer convenience in its merchandise presentation, dressing rooms, checkouts and merchandise return areas. Store sales areas are based upon a prototype single-floor design with a “racetrack” aisle layout. A customer locates the desired department with signs that are displayed just below the ceiling of each department. In most stores, shopping carts, baskets and/or shopping bags are available at each entrance for convenience. All cash registers are centrally located near each store entrance (Reuters, 2004).

Pricing. The Ross pricing strategy is different that that of a department or specialty store. Ross purchases merchandise at lower prices and marks it up less than a department or specialty store. This way it can offer customers consistently low prices. Specific departments in the stores are reviewed on a weekly basis for possible markdowns, based on the rate of sales and the end of each fashion season, in order to promote faster turnover of inventory and to accelerate the flow of fresh merchandise (Ross Stores, 2004).

Use of Technology. One way Ross backs up its commitment to customer focus is to see that the stores are organized to share information and ownership of the customer. Technology must support this holistic view and efforts, if the organization is to be truly coordinated (Bielski, 2001). Ross upgraded its corporate network in July 2000 with a VSAT (very small aperture terminal) satellite advanced communications network to connect its retail locations, enabling the company to run mission-critical applications such as large file transfers, e-mail transmissions, and instant credit authorizations for customer transactions.

With these added capabilities, the retail chain can transfer inventory data at regular intervals without clogging up the network. This allows it to exchange records that contain the most current supply information. In addition, the corporate headquarters can deliver real-time updates and information to each individual store, regardless of location. Stores can be brought online quickly and inexpensively, having quick access to the bandwidth needed to handle increased traffic being transmitted over the network. Reliable network connections have become a critical element in the success of any retailer (HNS, 2000).

Other areas in which the company is making use of technology include the implementation of a new financial control system that features web-enabled technology and intranet capability; implementation of a new warehouse management system; development of new core merchandising system to provide more in-depth inventory and sales data; and implementation of new point-of-sale and sales audit systems to provide faster and more efficient transaction processing, as well as extended multiple tender capabilities (Ross Stores, 2004).

Trends

One of the real tricks in successful management is not to rely on past customer behavior alone to figure out what they want, but to gauge customer intent in order to get the overall customer picture. In the past couple of years, Ross has renewed its focus on finding name-brand products for its stores, and customers have responded. The company understands that in apparel retailing, what it comes down to is having the right product.

Additionally, Ross is adding stores at a rate of about 12% a year. Since Ross has stores in fewer than half the states at the current time, there is great potential for it to grow. Ross stores are concentrated on the two coasts, with few stores in the Midwest. The company’s goal is to have about 900 stores in four or five years. Ross is definitely moving toward becoming a national player (Steen, 2002).

Ross’s next move is to launch a new line of stores called dd’s Discounts, some time in the second half of 2004. According to the company, these stores will target “lower-income households, the fastest-growing demographic market in the country” (Ross Stores, 2004). The stores, which will have a separate buying organization from Ross, will offer similar merchandise and departments as the main Ross stores, but they will have lower average prices (DiCarlo, 2003).

Conclusion

Ross has set out to target specific segments, or communities, of individuals, and to meet their changing needs over time. Ross’s emphasis on nationally recognized name brands reflects management’s conviction that brand-name merchandise, sold at compelling discounts, will continue to be an important determinant of its success. The ability to effectively execute certain off-price buying strategies is also a key factor in Ross’s success. Making use of technology is another area in which Ross recognizes what it takes in this competitive retail environment.

Ross’s mission is clearly stated as offering competitive value to its target customers by focusing on achieving an appropriate level of recognizable brands and labels at strong discounts throughout the store, meeting customer needs on a regional basis, delivering an in-store shopping experience that reflects the expectations of the off-price customer, and managing real estate growth to increase market share in major markets.

In order to stay in front of the competition, Ross is adding stores at a rate of about 12% a year, with the long-term goal of having about 900 stores in four or five years. Taking advantage of an important trend, Ross’s next move is to launch a new line of stores called “dd’s Discounts,” targeting lower-income households, which are the fastest-growing demographic market in the country.

Each of these elements has contributed and will continue to contribute to Ross’s ability to execute its successful management style. Ross knows who it is and does not allow itself to become distracted by irrelevancies. Ross has a management mission, and it is clearly focused exactly where it needs to be — directly and unwaveringly on the customer.

Works Cited

Bailey, S. And Shultz, D.E. (2000). Customer/Brand Loyalty in an Interactive Marketplace. Journal of Advertising Research, 40 (3), 41.

Bielski, L. (2001). How Do You Know Your Relationship Is Working? There’s More to CRM Than Semantics and Slick Marketing Slogans. ABA Banking Journal, 93 (10), 28+.

DiCarlo, L. (2003). Ross Stores Booms from Bargain Hunting. Retrieved April 15, 2004, from Forbes.com Web site: http://www.forbes.com/2003/12/11/cx_ld_1211overachievers.html

Gillenson, M.L. (2000). How Electronic Commerce Has Led to the Return of Personalized Marketing. Business Perspectives, 12 (3), 21.

Hughes Network Systems. (2000). Press Release: Ross Stores Upgrades Corporate Network with DIRECWAYTM Satellite Solution from Hughes Network Systems. Retrieved April 15, 2004, from Hughes Network Systems Web site: http://www.hns.com/?CurrentPath=corporate/news/pr/2000_archive/pr989606118930.htm

Reuters.com. (2004). Full Company Overview for ROST. Retrieved April 15, 2004, from Yahoo Investors Web site: http://yahoo.investor.reuters.com/FullDesc.aspx?target=/stocks/quickinfo/companyprofile/fulldescription& ticker=ROST.

Robbins, S.P. (2001). Organizational Behavior: e-business updated edition. Upper Saddle River, NJ: Prentice Hall.

Ross Stores. (2004). Retrieved April 15, 2004, from Ross Dress for Less Web site: http://www.corporate-ir.net.

Seybold, P. (2002). An Executive’s Guide to CRM: How to Evaluate CRM Alternatives by Functionality, Architecture, & Analytics. Retrieved April 15, 2004, from Patricia Seybold Group Web site: http://www.psgroup.com/freereport/imedia/report.asp#WhatIsCRM.

Steen, M. (2002, December 31). Bargain hunters help Ross buck the market. Mercury News, Retrieved April 15, 2004, from SiliconValley.com Web site: http://www.siliconvalley.com/mld/siliconvalley/4846032.htm.

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