Small Retailers on the Brink: Slower Sales Even Beyond the Holidays

Current Bad Situation
Although retailers everywhere are expecting bad holiday sales, small, independent businesses are being hit particularly hard. They typically don’t have the cash cushions or price-slashing abilities of the major chains. These independent retailers don’t have the margins to compete on price, as many shoppers gravitate toward large discounters like Wal-Mart to purchase lower-priced goods. This effect is especially devastating given the lack of growth in the market. According to the Wall Street Journal’s December 16th, 2008 issue, holiday sales are expected to rise 1.2% which is the worst year-over-year increase since 2001. Many of these smaller retailers are trying to find an effective competitive model to maintain business for not just the holiday season – but, as importantly, well into the year.

Find New Channels of Potential Business – Blue Ocean Spaces
Small retailers are going to have to look for Blue Ocean Spaces, and find new channels of potential business. While these businesses are too small to own a marketspace, they can certainly carve out profitable niches. There are three areas which small retailers can focus on to develop new business: geographic, demographic, and usage (both occasion and type). They can carry merchandise and services centered around a locale – and have offerings which are highly relevant to a given community. This is a Blue Ocean which large national chains will find very difficult to follow because many are very centralized in structure. As a smaller craft in the Blue Ocean Seas, local businesses can more adeptly cater merchandising, marketing, and operations to uniquely fit communities, towns, cities, and regions.

Look Beyond Current Buyers Demographics
Small businesses can also look outside of the demographic profile of current buyers to target additional customer groups. This can be done effectively by evaluating alternative or complementary industry buyer groups. Small retailers can look for synergic “hooks” to fulfill the needs for either of these groups. A business mentioned in the WSJ article, Charles Mayer & Company, is an up-scale boutique seller of china, crystal, and decorative accessories in Indianapolis. An example of them targeting a complementary buyer group would be to develop an interior design service which shows home- and condo-owning customers the appropriate matches of various pieces to rooms and homes being re-modeled or built. This look across industries would also yield very synergistic opportunities to bundle with partner companies. To further extend our previous example, Charles Mayer & Company could join with an interior design firm outright to provide pieces for a price discount or items which are exclusive to the given designer.

Blue Ocean Spaces Through Alternative Usage For Product Or Services
The third way a small retailer can discover or create a Blue Ocean Space is through alternative usage for their goods or service offerings. This can take the form of different types of usage for their offerings, or different or varied occasion usages for their goods and services. Possible variations on usage fit well with the previously mentioned opportunities to bundle with other goods and services. Alternative uses for a small retailer’s goods or services can be uncovered by looking at a buyer’s experience with related products or services. These retailers should observe and evaluate these buyer’s experiences before, during, and after a given product or service is used. This will yield rich insight into how to extend, alter, or retract their offerings in terms of recommended uses for their given products and the services they offer around them. For example, small auto repair shops have observed the success of “oil change only” shops such as Jiffy Lube, and now include even more discounted oil change services of their own as a front-end bundled offering when repairing other parts of a customer’s car. In this case, the usage occasion was changed from a scheduled maintenance item to an upfront service and opportunistic sale for a small retailer.

Azul’s Execution of Developing High Potential Blue Oceans Spaces

Brazil’s Air Transportation Infrastructure and Its Implications For Azul
All airliners in Brazil face challenges in their domestic airports and air-traffic control infrastructures which need improvement. To improve Azul’s profitability and long term rate of return, Brazil is going to have to eventually upgrade these structures. Azul can form a coalition with other Brazilian airliners to help subsidize and push the government to improve Brazilian airports and air-traffic control infrastructure. This coalition needs to lobby hard for improvements, because it has a direct effect on all of their operations. For all Brazilian airliners, it will help raise margins, lower costs, and more importantly, improve safety. Because Azul seeks to compete with bus routes in smaller and mid-size towns, it is critical that small and localized airports have the appropriate infrastructure to accommodate Azul’s jets. For towns which were previously mainly accessed by buses and cars, a substantial amount of resources must be invested in the airports.

Mimic Southwest’s Best Practices
There are also other ways that Azul can access Blue Oceans like Southwest does. It can make sure it sticks to Southwest’s point-to-point routing throughout Brazil, and avoid using hubs. Neeleman can establish a brand personality. This can be done in a way that’s appropriate to Brazilian culture, but friendliness like Southwest’s is universal and would likely be a “hit.” It can keep costs down with a no- frills feature and service approach. Also, and less obvious to customers, is to “hawkishly” maintain low operational cost. This is absolutely vital margin maintenance.

Why Azul Will Succeed
Although we are in difficult economic times in the U.S. and Brazil, Azul has overcome financial and logistic challenges to begin operations. It has a solid business model and value proposition for its customers. But what is most compelling about Azul and David Neeleman is the fundamental Blue Ocean marketspaces which they seeking to create in the domestic Brazilian travel market. Just the creation alone should be enough for them to prosper; couple this with better macro-factors in the future, with even merely competent management, and Azul will be able to ride out this initial turbulence to become a leading Brazilian airliner.

JetBlue Founder Starts Azul in Brazil and Seeks Another Blue Ocean Airliner

Azul Like JetBlue – Seeks Blue Ocean Space
David Neeleman, founder of JetBlue Airways, has launched his fourth low-cost airline in Brazil, called Azul. According to The Wall Street Journal’s December 16th issue, it started service Monday with four jetliners and plans to acquire four more by next month. Azul is a lot like JetBlue; even its name means blue in Portuguese, and it offers low fares with two-by-two leather seats in all economy cabins. Planning for Azul began early this year with $150 million from investors in the U.S. and Brazil, and firm orders totaling $1.4 billion for 36 118-seat E-195 jetliners from Brazil’s Embraer. Azul’s competitors are TAM Linhas Aereas SA and Gol Linhas Aereas Inteligentes SA, which combined have a 90% share of the local market. Given this coverage already, it would seem that Azul is headed into a red ocean – but given their strategy, this is not true. As Neeleman did with JetBlue, he is creating Blue Ocean space, and moving away from Brazil’s current red ocean airlines marketspace.

Emulating Southwest’s Blue Ocean Strategy
Azul Airlines is seeking to create Blue Ocean marketspace by emulating Southwest’s Blue Ocean strategy. Azul is not attempting to compete directly for Brazil’s TAN and Gol Airlines’ customers. It’s emulating Southwest’s strategy of competing with the car and long distance buses in Brazil. For example, the bus ride from Campinas to Salvador de Bahia is 33 hours compared to a two-hour flight for 209 reals or $87. This is a classic Blue Ocean strategy of offering differentiation along the key dimension of time savings/speed of travel, while offering relatively low costs. It also is a Blue Ocean strategy by creating a new marketspace of travelers trading up performance with a slight shift in price.

Another Uncrowded Marketspace: Brazilians Who Don’t Travel
David Neeleman is creating a new dual marketspace by offering an affordable price point for air travel to Brazilians who don’t normally travel! Azul is enabling Brazilians to travel the country at low price points, thus creating a huge market which did not previously exist – and more importantly, creating a space which competitors will find hard to follow. While this is not a classic Blue Ocean strategy “create” factor, it accomplishes the same objective – competitors can not effectively follow them into this lowest price point space for air travel in Brazil. The essence of what Neeleman is doing with Azul is raising the speed dimension, while lowering the cost dimension for the Blue Ocean Strategy Value Canvas.

Dual Focus of Accessing Two Ripe Marketspaces
Azul is pursuing a dual focus to fully access both these marketspaces. They are both relatively close to each other in that they are low-cost-oriented. Neeleman has identified two types of buyers in Brazil’s domestic market. To synergize resources in a duality strategy, map the utility of both buyer profiles along key airline and industry offering dimensions. Azul should maximize resources along the dimensions which converge toward high feature/benefit desirability for both these types of customers.