Ross Dress for Less: Applied Management Analysis

Introduction and CRM Framework

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; these 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 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 illustrates these objectives being put into effective action through the management philosophy of Ross Stores, Inc.

Company History and Overview

From 1957 to 1982, Ross operated as a small, family-owned 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, 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. Stores 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, home goods, bed and bath merchandise, and accessories.

The stock performance data below reflects Ross's strong market position at the time of this analysis:

Table 1. Stock Price & Volume (April 14, 2004)

Recent Price: $30.69 | 52-Week High: $32.86 | 52-Week Low: $17.90 | 52-Week Change: 66.4% | YTD Change: 16.0% | Average Daily Volume (Last 10 Days): 1,286,030 (Ross Stores, 2004).

Five years prior to this analysis, department stores held 21.5% of the retail market — a figure that fell to 18.7% in 2002, with some share shifting to discounters. Off-price retailers absorbed a substantial portion of that difference. Retailers such as TJ Maxx and Ross Dress for Less built their own distribution and sourcing networks, a move that permitted them to expand nationally. Special merchandise is now made exclusively for off-price merchants, helping 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 approximately 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 — customers who have shifted at least a portion of their apparel spending away from department stores. Notably, more than half of all off-price shoppers earn more than $49,000 annually (Forbes, 2004).

Management Formula and Customer Relationship Marketing

The Ross management approach is fairly simple and straightforward: sell brand-name clothing at up to 60% less than department stores. However, while the formula may be simple, the execution requires a complex coordination of partners and suppliers. Over the years, successful discount retailers have established sophisticated distribution and sourcing networks (DiCarlo, 2003). Some analysts argue that Ross's winning formula is driven by a struggling economy combined with a renewed focus on selling nationally known brands, noting that the store caters to shoppers who enjoy the "treasure hunt" aspect of bargain shopping (Steen, 2002).

As the economy weakened over the preceding years, consumers became increasingly reluctant to pay full price at department stores, focusing more on price than on convenience or service. As a result, the off-price retail sector — which includes companies such as TJ Maxx, Stein-Mart, and J.C. Penney, as well as Ross — enjoyed a compound annual growth rate of 6.5% from 1998 to 2002, versus a 15% loss for the general department store category (DiCarlo, 2003). Analysts believed the store's appeal to bargain hunters would serve it well even when the economy recovered (Steen, 2002).

Personalized marketing is simply the practice of offering a customer specific products based on what the retailer already knows about that customer. For most of retail history, even well into the twentieth century, this personalized knowledge was exactly how marketing was normally practiced (Gillenson, 2000). Today, the concept is captured under the term customer relationship marketing. Ross truly believes it pays to focus on specific segments, or communities, of individuals and to meet their changing needs over time. Every company seeks to develop loyal customers who buy consistently and who will resist the appeals of competitors. Ross recognizes that customer satisfaction is one important measure of that loyalty: a satisfied customer, according to most research, tends to remain more loyal to a product or store than an unsatisfied one (Bailey and Schultz, 2000).

Competition and Merchandising Strategy

Ross faces stiff competition. TJ Maxx, the world's largest discount clothing retailer, also performed strongly during the period examined. The two companies were essentially neck and neck in 2003 in same-store sales growth — a key retail metric measuring sales for stores open at least one year. By this measure, TJ Maxx was up 1% while Ross's same-store sales were flat. TJ Maxx shares rose 9% in 2003 but underperformed Ross shares, which rose 24%. Ross's five-year revenue growth rate stood at 11.5% (DiCarlo, 2003).

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

To effectively address competition, Ross carefully targets its promotional efforts to a specific market segment: value-conscious women and men aged 25 to 54, with middle to upper-middle income levels. Approximately 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 searching for a bargain. Ross shoppers average about three shopping trips per 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, current, and fashionable merchandise within each merchandise category, in an attractive and easy-to-shop environment (Ross Stores, 2004).

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

The company believes that its ability to execute certain off-price buying strategies is also a key factor in its success. Ross buyers purchase later in the merchandise buying cycle than department and specialty stores, enabling them to take advantage of imbalances between retailer demand for products and manufacturer supply. Ross waives advertising privileges for individual brands and offers no rebates, margin protection, or cooperative advertising support. Neither does the company require manufacturers to provide promotional or markdown allowances, return privileges, split shipments, drop shipments to stores, or delayed deliveries. Ross conducts business very quietly but aggressively. Over the preceding ten years, Ross had quadrupled the number of buyers it uses to 200, with those buyers in daily communication with over 4,000 manufacturers to ensure no opportunity is missed (DiCarlo, 2003).

Most of the merchandise Ross offers 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 in company 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. This inventory consists mainly of fashion basics and is generally unaffected by shifts in fashion trends. During 2000 and 2001, the company implemented enhanced analytical processes for regionalized merchandise buying and allocation, with the goal of fine-tuning the merchandise mix and raising 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 follow a prototype single-floor design with a "racetrack" aisle layout. Customers locate the desired department using signs displayed just below the ceiling of each section. In most stores, shopping carts, baskets, and shopping bags are available at each entrance, and all cash registers are centrally located near store entrances (Reuters, 2004).

Conclusion

Ross has set out to target specific segments, or communities, of individuals and to meet their changing needs over time. The company'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 off-price buying strategies is also a key factor, as is the strategic deployment of technology in a highly 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.

To stay ahead of the competition, Ross was adding stores at a rate of approximately 12% per year, with the long-term goal of reaching approximately 900 stores in four to five years. Taking advantage of an important demographic trend, the planned launch of dd's Discounts targeted lower-income households — 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 approach. As a study in retail management strategy, Ross offers a clear example of an organization that knows precisely who it is and does not allow itself to become distracted by irrelevancies. Ross has a management mission, and it is focused exactly where it needs to be — directly and unwaveringly on the customer.

Works Cited

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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.

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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: