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Master’s Thesis

Factors that influence the successful survival of established

companies in the Dutch non-food, retail middle segment

Anke Volleberg | 10730907

Final version | 30-June-2016

Executive Program in Management Studies | Strategy Track

Supervisor: Dr. Ir. Jeroen Kraaijenbrink

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Statement of originality

This document is written by Student Anke Volleberg who declares to take full

responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and

that no sources other than those mentioned in the text and its references have

been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision

of completion of the work, not for the contents.

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Table of content

Abstract ... 4 1. Introduction ... 5 1.1 Problem statement ... 8 1.2 Relevance ... 9 1.3 Scope ... 9

1.4 Research method – Summary ... 10

1.5 Thesis outline... 10

2. Literature review ... 12

2.1 Development of the Dutch non-food retail landscape ... 12

2.1.1 People ... 12

2.1.2 Economy ... 13

2.1.3 Technology ... 14

2.2 Characteristics of the middle segment in the Dutch non-food retail market ... 16

2.3 Business Model ... 20

2.3.1 Characteristics of a good business model ... 23

2.4 Business transformation ... 25

2.5 Company’s ownership ... 28

2.6 Potential influencing factors for successful company survival – Conceptual model ... 30

3. Methodology ... 33

3.1 Research strategy ... 33

3.2 Case selection ... 34

3.3 Data collection ... 36

3.4 Data analysis ... 38

3.5 Validity & reliability ... 40

4. Within case analysis ... 42

4.1 V&D ... 42 4.2 Macintosh ... 46 4.3 DA ... 48 4.4 Etam Group ... 51 4.5 USG ... 54 4.6 HEMA ... 57 4.7 Blokker ... 61 4.8 H&M ... 65

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4.9 Hunkemöller ... 68

4.10 Zara ... 70

5. Cross-case analysis & Discussion ... 74

6. Conclusion ... 86

6.1 Theoretical & managerial implications... 88

6.2 Limitations ... 92

6.3 Suggestions for further research ... 93

7. References ... 95

7.1 Books ... 95

7.2 Articles ... 95

7.3 Internet sources ... 97

8. Appendices ... 101

8.1 Appendix 1: Overview collected data ... 101

8.2 Appendix 2: Interview protocol ... 105

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Abstract

The retail market is going through some fundamental changes. Reality shows that many non-food retailing companies in the middle segment fail or have difficulties to survive in the changing Dutch retail landscape, while other companies in the same segment manage to successfully do so. The current literature does not provide sufficient insight to explain why many retailers have difficulties to survive while many others don’t. This study contributes to the literature by providing an overview of which factors determine the successful survival of established companies in the Dutch non-food retail middle segment. A qualitative research has been conducted based on a multiple case study. Multiple sources of secondary data have been used next to semi-structured interviews with retail experts. The results show that, as expected based on the literature, a strong customer centric approach, a strong cross channel strategy and a strong long term orientation are indeed positive factors of influence on companies’ chances of survival. A specific generic strategy could not be identified as a factor of influence, but a strong positioning in general has been. When it comes to business transformation not one type of change proves to be the best option, however retailers which constantly keep on developing their business model have a better chance of surviving. The type of company ownership – family owned versus non-family owned – shows not to be of influence, but a franchising structure has been identified as a negative factor of influence as often conflicts between franchisors and franchisees have a negative impact. Furthermore, the soundness of a company’s profit formula, the capacities of the management, a company’s financial position, the retailer’s business structure, and the company scale and orientation are identified as factors which determine the successful survival of non-food retail companies.

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1. Introduction

Retail is a highly dynamic market which is constantly developing. Currently fundamental changes on the level of people, economy and technology (Quix, 2013; Voss, Rabobank, 2015) are causing consumer habits to evolve. Because of this the relationships in the retail value chain are shifting. Developments in economy and technology have changed the traditional balance between customer and supplier.

Consumer behavior is changing. Consumers today are showing more hybrid consumer behavior, because of which they do not anymore fit pre-specified consumer segmentation criteria (Ehrnrooth & Gronroos, 2013). The hybrid consumer moves more towards both ends of the value proposition, buying cheaper goods and low-end brands on some purchase occasions, and then on other occasions trades up to premium, high-end brands and happily pays for them (Ehrnrooth & Gronroos, 2013). This leads to a shift in the division of the market. The traditional division of low-middle-high market level does no longer exist, putting pressure on companies in the traditional middle of the market and creating opportunities for discounters and niche-market/specialty retailers (Voss, Rabobank, 2015). New communications and computing technologies mean that customers have more choices available and that prices and alternatives have become more transparent. Because of this businesses need to be more customer-centric (Teece, 2010) and need to set new requirements in order to ensure their company is ready for the future (CBW-Mitex, 2010).

The fundamental changes in the market demand distinctiveness of the retailers and thus constant innovation. Especially retailers operating in the middle segment should constantly monitor changes in the environment and realize that being flexible and being able to quickly adapt to changes in the marketplace are key to their survival (Grewal et al. c.f. Krafft et al., 2010). This could mean that companies have to adapt their current ways of working to the new situation, or that they have to make a move in their market position to adapt a new retail structure. In 2005 Gagnon & Chu already argued that “traditional strategies would not be adequate to cope with trends that will push the retail industry

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distinctive brand proposition, 2. drive customer-valued innovation through deeper insight, 3. optimize core activities through systematic intelligence, and 4. realign the organization to operationalize customer centricity. The fundamental challenge for retailing companies is to “become truly customer-centric in strategy and execution” (Gagnon & Chu, 2005).

A changing landscape creates not only the need to consider how to better address customer needs, but also how to capture value from providing new products and services. This requires a well-developed business model. A business model demonstrates how a business creates and delivers value to customers (Teece, 2010). Chatterjee (2013) defines a business model as “a configuration (activity systems) of what the business does (activities) and what it invests in (resources) based on the logic that drives the profits for a specific business” (p. 97).

The development of a business model is in itself not sufficient to assure competitive advantage as imitation is often easy. Business model innovation however can in itself lead to competitive advantage if the new model is sufficiently differentiated and difficult to imitate by competitors (Teece, 2010). A 2005 study of the Economist Intelligence Unit (EIU) showed that the majority of executives believed that revising the business model on a regular basis is important in order to remain competing successfully. 55% of the 4018 executives involved in the study identified new business models as a greater source of competitive advantage than new products or services. Voelpel et al. (2005) also argued that corporate survival in today’s fast-changing world depends on being ahead in business model thinking. In an increasingly discontinuous environment, companies should strive to be alert and be capable to rapidly adapt in order to create new customer value (Voelpel et al., 2005).

When looking at the recent developments in the Dutch non-food retail market, reality is that indeed many retailers in the middle segment struggle to survive in the developing landscape. In 2015 several retailing companies were declared bankrupt, among which a couple of well-established large retailing companies. Many of these companies, like Macintosh and DA operated in the middle sector of the retailing market. Other companies at the same level of the market, for example HEMA, are still

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struggling to get out of the red (HEMA annual report, 2014). These companies struggle(d) to survive despite the fact that the Dutch retail industry in general was on its way up (CBS, 2015). This shows that it is a specific type of company struggling to survive while the retail industry in general still has plenty of opportunities. Yet identifying the struggling companies simply as middle-level non-food retailers is too easy as there are also companies in this middle level which are in fact successful. Take for example H&M. In 2015 the company’s total turnover increased nearly 19% (in the Netherlands 3%) and the total net profit increased nearly 5%. The company also opened four new stores in the Netherlands making a total of 139 Dutch locations (H&M full-year report, 2015. Figures in SEK). Another example is the lingerie store Hunkemöller. Although last year there were some rumors about disappointing operating results, the last couple of years the company is in general known to be a successful retailer. Since the French investment company PAI bought Hunkemöller in 2011 for €265 million, the total number of stores has increased from approximately 500 to about 650 stores today. Over 130 of these stores are located in the Netherlands. PAI recently sold Hunkemöller with a respectable profit to the American investment company Carlyle. Also, at the 2015-2016 Retailer of the Year awards, consumers rewarded Hunkemöller for the best web shop Europe and as the best cross channel chain Europe (Q&A Research & Consultancy, 2015). These examples show that there are still opportunities for non-food retailers in the middle level of the market, however it is up for the companies to seize them.

The most prominent Dutch retailing company – also operating at the middle sector of the market – that did not manage to survive is the department store V&D. V&D owned 62 stores and had about 10.000 employees. Since its foundation in 1887 V&D had a prominent place in the Dutch retail landscape. Last December V&D ran into critical financial problems and had no other choice but to file for bankruptcy. The bankruptcy was not entirely unexpected, V&D already suffered losses for years. In an attempt to make the company profitable again it restructured several times. The company restyled its stores several times in an attempt to increase the turnover. In 2007 the company changed its name

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brands. The CEO left already in 2014, leaving these plans unfinished. At the leadership of the new CEO V&D shifted the focus again to private labels, targeting female customers and introducing live events in the department stores. All these renewals did not lead the company to success and on the last day of 2015 the company was declared bankrupt.

The story of V&D shows that the company was very aware that it had to change, but in the end they did not manage to transform their company in such a way to become profitable again. This is despite the fact that a lot of research has been done already about how companies can successfully transform their businesses. Several authors have offered practical models which can offer guidance for organizational change, for example Kanter et al.’s (1992) ‘Ten commandments for executing change’, or Kotter’s (1995) ‘Eight steps to transforming your organization’. In his later work Kotter (2012) moves away from the idea that organizational change usually should be planned ahead and implemented from the top-down, and argues that organizations in turbulent environments should develop a dual operating system – a management driven hierarchy and a strategy network. Gilbert et al. (2012) propose a method for successful business transformation in the same line of thought as Kotter (2012). They argue that in order to be able to response in time to market shifts, companies should lead the required business transformation via two routes – route “A” which should adapt the core business to the realities of the disrupted marketplace, and route “B” which should create a new, disruptive business that will become the company’s next source of growth.

Change models like those of Kanter (1991), Kotter (1995, 2012) and Gilbert et al. (2012) are guidelines for companies in how to make a successful transformation, though reality shows that, despite the fact that the retail industry in general is going up, still many companies in the non-food middle level retail industry have failed or are struggling to make their companies profitable again.

1.1 Problem statement

Given that there is not much debate on whether or not companies must be innovative to remain profitable in the fast developing landscape and that a lot of research has been done already about how

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to successfully change a business, the question remains why these companies do not manage to make their companies profitable again. The current literature is not sufficient to get this question answered. Especially the fact that many cases of the particular group non-food retailing companies at the middle segment have trouble to survive needs more research. The purpose of this research is therefore to gain more insight on this issue. The research questions of this study is: Which factors determine the

successful survival of established companies in the non-food retail middle segment?

1.2 Relevance

Although a lot has been written about the changing retail landscape and the impact it has on the companies operating in this market, the current literature does not answer the question why so many non-food retailers in the middle segment do not manage to successfully survive. It is scientifically relevant to examine what is the reason behind this fact. The aim of this research is to fill this gap in the existing literature and to contribute to it by examining the factors that determine successful survival of established companies in the Dutch non-food retail middle sector.

This study is also of social importance. The total turnover of the retail in the Netherlands in 2013 was approximately €96 billion. Nearly 700.000 people work in 100.000 stores, which makes the retail industry the largest employer of the Netherlands (Detailhandel Nederland, 2016). Research on this topic can not only provide more insight for retail companies in how they can successfully survive in the fast developing landscape, but is also relevant for (local) governments, trade unions and real estate owners.

1.3 Scope

The focus of this study will be on the Dutch non-food retail market. The food and non-food retail develop completely differently (Quix, 2013). According to ABN Amro (2013) the non-food sector significantly suffers more from a declining turnover than the food sector due to declining consumer confidence and the consequent declining willingness to buy. Of the total number of bankruptcies in

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Furthermore, this research focusses on the middle segment of the market. Consumers are moving more to both ends of the value proposition, leading to a shift in the division of the market and putting pressure on companies in the traditional middle segment (Voss, Rabobank, 2015). Because of this, the need for companies focusing on this segment of the market to transform their business is increasing.

The time frame of the research is 5 years (2011-2016). This time frame has been chosen as it is short enough to focus on the most recent developments in the cases and the market, but still enables to review the influence of more longitudinal developments such as strategic changes.

1.4 Research method – Summary

In order to answer the research question a qualitative research strategy has been chosen based on a multiple case study. This method has been chosen as the best way to get to an overall perspective on the factors that determine the successful survival of companies in the non-food middle level retail market. In this sector the reality shows that multiple companies have failed or are struggling to survive, so a multiple case study would be most suitable. A multiple case study can give insight in whether findings for the reasons of these failures can be replicated across cases (Saunders et al., 2012).

Multiple sources of secondary data have been used, such as newspaper articles, opinion pieces and published TV reports in which well-known retail experts have their say about the current situation in the Dutch non-food retail middle segment. Next to secondary data analysis semi-structured interviews have been conducted with four retail experts. The experts were able to provide more information on general developments of the retail market. Next to that their opinions have been asked about the choices the companies of the selected cases have made, and the related causes and effects.

1.5 Thesis outline

In chapter 2 an overview of the literature is given in which the development of the Dutch non-food retail landscape is discussed, as well as the existing literature on business models and business transformation. Several potential factors of influence on the companies’ chances of survival which are identified and represented in a conceptual model. Chapter 3 provides a more detailed description of

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the research methods. In chapter 4 the results of the research are given and analyzed in a within case analysis. In chapter 5 the results of this study are reviewed in a cross case analysis and the results are discussed. Chapter 6 will give an overview of the conclusions of this study, the theoretical and managerial implications, and the limitations of this research and suggestions for further research.

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2. Literature review

This chapter is divided in six paragraphs. First the developments in the Dutch non-food retail sector will be given. In the second paragraph the characteristics of the middle segment of the market will be described. In the third paragraph the current literature on business models will be discussed, after which the current literature on business model transformation will be discussed. In the fifth paragraph the possible influence of the company’s ownership structure will be described. Finally all discussed concepts will be brought together, and an overview will be given of all identified potential factors of influence on company survival.

2.1 Development of the Dutch non-food retail landscape

The retail market is highly dynamic and in constant development. Today, the world around us is changing rapidly, demanding more from retailing companies than ever before. According to Rigby (2011) every 50 years or so the retail industry undergoes a kind of disruption. In the 1950’s self-service shops were introduced, which completely reshaped the retail industry. It led to new retail business models, whereby increased efficiency and scale were made possible (Quix, 2013). Today we are in the middle of a new disrupting period, leading to a changing retail landscape. Quix (2013) identifies three factors which will lead to fundamental changes in todays and tomorrows retail industry. The model is called the PET-model, in which PET stands for people, economy and technology. Below these three factors will be discussed in more detail.

2.1.1 People

The first fundamental change is on the level of people. Both de composition of the population and the consumer behavior influence consumer spending (Quix, 2013). The European population is aging. As a result of lower birth rates and higher life expectancy the EU median age is expected to rise from 40.6 years in 2009 to 47.9 years in 2060 (Eurostat yearbook, 2011). Another demographic trend is urbanization. Currently 75% of the European population is living in urban areas and the expectation is that this number will increase to eighty percent in 2020 (PWC, 2015). As the Dutch are not willing to travel far to go shopping – consumers are on average willing to travel little over 15 minutes one way

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for a shopping trip – the differences within the Netherlands will become bigger and influence the need and the type of shopping facilities on the various locations (Quix, 2013).

Equally important, if not more important, are the changes in consumer behavior. Today it is impossible to imagine consumer behavior without computers, tablets and mobile phones. While 10 years ago a phone was just a device to make calls on, today they are increasingly being used to purchase goods and services as well as to orientate, get inspired, and communicate with other consumers for example on social media.

Consumers are also becoming more hybrid. The hybrid consumer type does not fit into any particular market segment defined in the traditional marketing literature (Ehrnrooth and Gronroos, 2013). The same consumer can buy at a discount store today, while paying premium prices at a high-end store tomorrow. Kitty Koelemeijer (2016), professor Marketing and Retailing at Nyenrode Business University: “The buying behavior becomes more individualistic and 'mid-segment' consumer

disappears. We cut back on groceries to eat out luxury in the weekends or buy clothing as cheaply as possible while saving for a designer It bag.” This development has led to a shift in the division of the market. With H&M entering the market in 1989, the Inditex-company Zara ten years later, and in 2008 the Irish discounter Primark, the former low-level of the market keeps on shifting to the middle further and further (Koelemeijer, 2016). Reason for this shift can be partly sought in the recent global economic crisis because of which people had to become more price conscious. Another reason for this shift can be found in digital revolution which has led to a market in which customers can easily compare products and prices, making it easy to evaluate were to get the best value for money (Koelemeijer, 2016). These developments require businesses to re-evaluate the value propositions they present to their customers (Teece, 2010).

2.1.2 Economy

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the non-food retail in the Netherlands has shown a very limited growth. In these ten years the total achieved growth was only 4%, meaning less than 0.5% per year. In the same period the inflation was an average 2.4% per year, meaning that stagflation – a period in which inflation is high, combined with a stagnant demand and high unemployment – was reality (CBW-Mitex, 2010). Currently economic recovery is visible but expectations for the growth of private consumption are moderate in historical perspective. This makes that "market growth" is no longer a dominant factor for retailers, and gaining market share becomes more and more important (Voss, Rabobank, 2015).

2.1.3 Technology

Technological changes already had a major influence on the retail market. Online shopping in Europe has increased from 50% of the internet users using it to buy goods or services in 2008 to 61% in 2013 (Eurostat, 2015). Since 2004 the Dutch number of online shoppers increased by 128% and the online shopping penetration in 2013 was at 70% of the Dutch population (Quix, 2013). In 2011 the online share for the non-food retail sector was about 9%. The trend of increasing online shopping is expected to continue, although the growth is expected to slow down. In the medium term this would mean that the online share of the non-food retail sector is heading towards an online share of one-fifth to a quarter (Quix, 2013). The growth of online retail will unavoidably influence the turnover of the brick stores, and will in the end affect the stocks of the brick stores and or the function of these stores (Quix, 2013).

Although the market share of online retail has been growing over the past couple of years already, the amount of square meters of retail floor has increased. This has led to a surplus of square meters of retail floor, which is already visible in the declining numbers of productivity per square meter (Quix, 2013). It is therefore expected that a period of restructuring will follow, in which necessarily square meters of retail space will disappear (ABN-Amro, 2013). There are also other technological developments which have the potential to change the industry such as virtual fitting rooms or mobile payment. Consumers are willing to except new technologies faster. They are getting used to the convenience idea of being able to shop everywhere at any time. They consider a store a store, whether

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it is a physical store in a shopping street or a digital store (CBW-Mitex, 2010). Also social networks have already changed the retail landscape massively. Ten years ago Facebook was something just a few people had heard of yet, Instagram and Pinterest did not even yet exist. Today, the social networks have gone beyond being a means of contacting friends and have become essential tools in brand engagement. The lines between online and offline shopping are increasingly blurring, raising the expectation that cross-channel strategy will win over either online or offline stores in the very near future (CBW-Mitex, 2010).

The fundamental changes described above make that retailers are facing one of the largest adaptations in their business models since the introduction of the self-service stores (Quix 2013). Each wave of change doesn’t eliminate what came before it, but it reshapes the landscape and redefines consumer expectations. Retailers relying on earlier formats either adapt or die out as the new ones pull volume from their stores and make the remaining volume less profitable (Rigby, 2011). Retailers will need to adapt their business models in order to meet today’s customers’ needs, by focusing more on demand driven concepts and adjust their offerings to individual customer needs. This sounds logical, however it is directly opposed to the core competence of most established retailers, especially the large retailing chains, as most of them have been able to grow because of standardization. However today it is necessary for retailers to find the right balance between differentiation and standardization, and the companies which are best in meeting the local customers’ needs will gain market share (Quix, 2013). As mentioned, due to current economic situation market growth is no longer expected and market share becomes a more and more important factor (Voss, Rabobank, 2015). Gagnon & Chu (2005) also argued that in order to keep raison d’être, retailing companies must “realign their organization to operationalize customer centricity”, and that retailers “must become truly customer centric in strategy and execution”. Established retailers need to adapt their business models and focus on concepts which are demand driven, rather than build on standardization. They need to adjust their offerings to the

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retailing companies have a business model with a strong customer centric approach can be identified as a possible influencing factor for successful company survival.

One of the most important changes in customers’ demand is that, due to the technological developments, today’s customer is getting used to the idea of being able to shop everywhere at any time, blurring the lines between online and offline shopping (Mitex, 2010). In 2010 already, CBW-Mitex expressed the expectation that a cross-channel strategy would win over either online or offline stores in short term. Therefore, today in 2016, the fact whether or not non-food retail companies execute a strong cross channel strategy can be identified as a potential influencing factor on whether they manage to survive or not.

2.2 Characteristics of the middle segment in the Dutch non-food retail

market

The term ‘middle segment’ is related to the positioning of a company in the market. A market can be segmented according to different variables. A company should decide which of these segments it will target. After that the company should position the offered product or service in the eyes of the consumer and create a marketing mix to communicate the positioning (Dibb, 1998).

A company’s position in the market relative to its competitors determines whether a company’s profitability is above or below industry average (Porter, 1980). In order to gain above industry average profitability, companies must seek for competitive advantage. According to Porter (1980) there are three generic strategies to gain competitive advantage. The first strategy is cost leadership, in which a company aims to offer value at the lowest prices in the target market. The second strategy is differentiation, in which a company offers a product or service with unique attributes which are valued by the customers. The third generic strategy is the focus strategy, meaning that companies should concentrate on a narrow segment and within that segment achieve either a cost advantage or a differentiation advantage. Porter (1980) claims that companies should make a clear choice on which strategy they want to follow. Companies which fail to make a clear choice and want to achieve advantage on all fronts will in the end become ‘stuck in the middle’ and are almost guaranteed low

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profitability (Porter, 1980 c.f. Wright, 1987). As mentioned before, today’s customers are becoming more hybrid, moving away from the traditional middle segment. This indicates that a clear choice for one generic strategy, rather than being a middle level player on various levels, is becoming more important. Critics to Porter’s (1980) generic strategy theory however argue that focusing on more than one generic strategy is not necessarily a bad thing. Miller (1992) for example argues that in some cases mixed methods, in which companies combine aspects of differentiation with cost-effectiveness, can be preferred, for example when it is easy for competitors to imitate pure strategies or when fluctuating customer preferences and rival offerings demand a broader range of skills.

According to Levy & Weitz (2004) positioning is “the design and implementation of a retail mix to create an image in the mind of the customer, relative to its competitors”. This definition indicates that the positioning of a company is a subjective concept, which is shaped in the perception of the consumer. The term ‘relative to its competitors’ indicates that the perception consumers have on the positioning of one company in the market is strongly related to the perception consumers have of other companies in the same market, which means that a company’s positioning is not permanent and that it can change – even if the company itself aims to retain its position – due to the changing perception consumers have on the positioning of the company’s competitors.

The way in which the Dutch non-food retail market is segmented can be looked at in different ways. One could segment for example based on product category, geographically or on price-level. In 2005 Levy et al. developed a model (see figure 1) which describes the evolution of retail strategy based on two dimensions: first the relative price (depicted on the horizontal axis), and second the relative offerings (depicted on the vertical axis). According to this model retailers typically fall into one of four segments: low-price, big-middle, innovative and in-trouble. Low-price retailers compete by offering good value primarily through low prices. Examples of this type of retailers on the Dutch non-food retail market are discounters like Primark, Big Bazar and Action. Innovative retailers compete primarily by

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quality products, specialty products and/or a high service level, which allows them to offer the products at relative high prices. Retailers operating in the big middle thrive because of their value offerings. The term ‘big middle’ is defined as “the marketspace in which the largest retailers compete in the long run” (Levy et al., 2005). Retailers which are unable to deliver high levels of value relative to their competitors will be pushed into the segment called ‘in-trouble’ (Levy et al., 2005).

Figure 1: Retail landscape

Source: Levy, Grewal, Peterson and Connolly (2005)

According to the concept of the big middle, retailers tend to originate as either innovators or low-price retailers. The successful ones eventually transition or migrate to the big middle because there is where the largest number of potential customers reside. Although retailers do not have to be in the big middle to be successful in the short run, the largest and most successful ones are drawn there over time in search for scale economies, increased revenues and incremental profits (Levy et al., 2005). For many retailers the move to the big middle requires that they expand their offerings into broader and deeper product lines or expanded markets, and that they become more volume driven. Companies in the big middle should however be aware that they keep on delivering the right balance of good value for money, as they will be constantly challenged by new innovators and new low-price retailers. As simply being in the big middle is not sufficient for long term viability, companies which don’t manage to maintain and sustain their value proposition will be pushed in a troubled position. As companies will migrate to the big middle, and new low-price retailers and new innovators will enter the market, the

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big middle is dynamic (Levy et al., 2005). Due to environmental changes and changing customer behavior the big middle will continuously evolve.

The concept of the big middle is broadly in line with the traditional high-middle-low segmentation approach that is generally used in the Dutch non-food retail sector. Although there is no clear definition on what the high, middle or low segment is, the terms are used in many publications about the retail sector, for example by branch organizations, industry experts from various banks, and in news items. In general it can be assumed that the Dutch non-food retail high-middle-low segmentation is based on the price-value level the retailers offer to their customers. Retailers operating in the low segment offer products at low prices, the so-called discounters, which is in line with Levy et al.’s (2005) low-price retailers. High segment retailers offer premium products at premium prices, for example niche-market players, which is similar to Levy et al.’s (2005) innovative retailers. Middle segment retailers are in between, seeking to be competitive by offering relative good value for money, which is in line with Levy et al.’s (2005) big middle. Where the low and high segment transit into the middle segment cannot clearly be determined and can considered to be subjective. Sometimes the segmentation is expanded to four or five categories, introducing the low-middle and/or high-middle segments. The fact that the boundaries of the middle segment are not clear has also to do with the fact that market is highly dynamic, and that changes in the market regularly shift the proportions.

Being in the middle for a company means that there is a less distinctive character based on the position in the market. The company’s distinctiveness has to come from other aspects. This immediately shows that, despite the fact that the big middle has the largest numbers of potential customers, surviving in this highly competitive part of the market is not easy. In order to successfully compete in the big middle segment retailers should offer a compelling value proposition to their customers.

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cheaper goods and low-end brands on some purchase occasions, and then on other occasions trades up to premium, high-end brands and happily pays for them. With this current development the middle market is likely to become an even harder place to operate for undifferentiated providers that cannot contribute to a hybrid consumer’s identity formation (Ehrnrooth and Gronroos, 2013).

Non-food retailing companies operating in the middle of the market should be able to quickly respond to market changes and maintain a nimble and flexible mindset. They should constantly monitor changes in the environment and realize that being flexible and being able to quickly adapt to changes in the marketplace are key to their survival (Grewal et al. c.f. Krafft et al., 2010). They constantly have to find ways to offer their customers the best value for money relative to their competitors, demanding a high awareness of what today’s customers want.

Based on the literature described above one can conclude that, provided that a company has a good balance between the value it offers and the price it asks for its offerings, a retailing company can be successful in the low and high segments, as well as the middle segment. Due to the high competitiveness in and the less distinctive character of the middle segment, retailers in this segment will need to differentiate themselves from their competitors through other aspects than its market position alone. Following an explicit generic strategy in order to not get ‘stuck in the middle’ (Porter, 1980) could be a strategy leading to competitive advantage, however in some situations a mixed strategy, in which a company combines aspects of differentiation with cost-effectiveness, might be preferred (Miller, 1992). Whichever option would work best for Dutch non-food retailing companies in the middle segment cannot be concluded based on the literature, but the type of generic strategy can be identified as a potential influencing factor for successful company survival.

2.3 Business Model

The fundamental changes in the retail market demand that established non-food retailers take a critical look at their business models, especially retailers positioned in the middle segment. Teece (2010): “Whenever a business enterprise is established, it either explicitly or implicitly employs a

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particular business model that describes the design or architecture of the value creation, delivery, and capture mechanisms it employs. The essence of a business model is in defining the manner by which the enterprise delivers value to customers, entices customers to pay for value, and converts those payments to profit. It thus reflects management’s hypothesis about what customers want, how they want it, and how the enterprise can organize to best meet those needs, get paid for doing so, and make a profit”.

The term business model appeared in an academic article for the first time in 1957 (Bellman, Clark, et. al., 1957 c.f. Osterwalder et al., 2005). However, it wasn’t until the end of the 1990s that the concept rose to prominence. Since then the term was most frequently but not only used in relationship with the internet (Osterwalder et al. 2005). Although since then a lot has been written about business models and the topic has led to a lot of publications by journalists, business people, and academics, there appears to be little consensus about an operational definition. Before 2000 definitions on business models focused more on the product and the so called marketing mix. Since the year 2000 definitions on business models are more and more about creating value. Definitions vary from Magretta’s (2002) short version “stories that explain how enterprises work”, to Chatterjee’s (2013) broader definition “A business model is a configuration (activity systems) of what the business does (activities) and what it invests in (resources) based on the logic that drives the profits for a specific business”. Despite the lack of consensus about an operational definition on the term business model, several similarities can be distinguished in the literature (Cao, 2014; Casadesus-Masanell & Ricart, 2011; Chatterjee, 2013; Chesbrough, 2010; Magretta, 2002; Osterwalder et al., 2005; Osterwalder & Pigneur, 2010; Sorescu et al., 2011; Teece, 2010).

One of the most important elements in most definitions on business models is it should explain how a company will create customer value. The business model should give answers to the questions ‘who is the customer?’, ‘what does the customer value?’, and ‘why should the customer buy our companies

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A second important element of a business model which can be identified in most of the literature is a

profit formula. The business model should explain how the company is able to make a profit out of the

business activities, referring to the revenue streams and costs of the company. Various terms are used though the underlying thought of all these different terms is the same: the business model should answer the question ‘what is the underlying economic logic that explains how we can deliver value to the customers at an appropriate cost? (Magretta, 2002)’.

Furthermore a business model should illustrate which key resources of the enterprise will enable the company to create value for the customer and deliver it at an appropriate cost. The key resources can refer to financial and non-financial assets, as well as a company’s staff, key competences and/or processes.

Another important element in many of the definitions on business models is value chain. Much of the literature on business models discusses the fact that companies should be aware of the important relationships a company has with other parties in the value chain. One business model may appear superior to others when analyzed in isolation but create less value than the others when interactions are considered (Casadesus-Masanell & Ricart, 2011).

The final corresponding topic that can be identified when reviewing various definitions on business models is the strategic goal. However, whether or not the strategic goal is part of the business model is still up for some debate. Chesbrough (2010) argues that a business model should ‘formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals’. Teece (2010) on the other hand argues that a good business model will provide considerable value to the customer and collect a viable portion of this value in revenues, but it is insufficient in itself to assure competitive advantage since the gross elements of business models are quite easy to imitate. Teece (2010) argues that a business model is more generic than a business strategy. He does however agree that a good business model provides the basis for a good competitive strategy, and therefore the two are strongly related. Casadesus-Masanell & Ricart (2011) argue that business models and strategy are

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not the same, however they are strongly related. Whereas business models refer to the logic of the company – how it operates and creates and captures value for stakeholders in a competitive marketplace – strategy has the plan to create a unique and valuable position involving a distinctive set of activities (Casadesus-Masanell & Ricart, 2011). Whether or not the strategic goal is an element of a business model or if it is an element closely related to the business model is thus still open for debate, though one could conclude that a strategic goal is at least an important element in relation to a business model.

The various elements of a business model do not stand on their own; they are strongly related. A decision influencing one element of the business model automatically influences the other elements as well (Sorescu et al. 2011).

2.3.1 Characteristics of a good business model

There is no blueprint of what a successful business model should look like. Each industry and every company is different, meaning that a good business model will also be different in each case. Yet some general characteristics of a good business model can be identified from the literature.

Magretta (2002) argues that a successful business model should at least be able to pass two critical test. It should meet the narrative test, meaning that the story of the business model – including all the different elements – should make sense. Next to that a good business model should meet the numbers test; it should lead a company to become a profitable business.

Casadesus-Masanell & Ricart (2011) identify three important characteristics of a good business model. First a good business model should be aligned with the company goals. Secondly, it should be self-enforcing, meaning that the various elements of the business model should complement one another, leading to internal consistency. For example, if a discount store decides to offer high service to its customers, this would lead immediately to higher costs, undermining the low-cost structure and so

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replicating your business model), 2. holdup (threat of customers and suppliers being able to capture the created value by flexing their bargaining power), 3. slack (organizational complacency), and 4. substitution (threat of new products decreasing the value customers perceive in the company’s products). In general Casadesus-Masanell & Ricart (2011) argue that successful business models generate virtuous cycles. A positive decision on one element of the business model should have a positive influence on the other elements of the model, leading to an even better position for the company in creating customer value. For example, a fashion store offers low prices and handles high volumes. These high volumes lead to a greater bargaining power with the suppliers, leading to lower costs and thus the store is able to offer even lower prices. Companies should design business models in such a way that they trigger virtuous cycles that, over time, expand both value creation and value appropriation.

According to Osterwalder & Pigneur (2010) a good business model is based on a long term perspective. The environment is constantly changing and should therefore be scanned all the time in order to understand how it might affect the business model over the long term. This also requires proactiveness. Implementing a successful business model today does not guarantee success tomorrow. As the market is changing fast and not all external factors can be anticipated on upfront, a proactive response to market evolutions is increasingly important. Companies should be flexible in adjusting the business model and in the underlying processes. Companies that rely too long on their existing business model will in the end become a victim of their own success.

Although the literature does not give any consensus on which characteristics define a good business model, both Osterwalder & Pigneur (2010) and Casadesus-Masanell & Ricart (2011) agree that a good business model should be based on a long term perspective. While Osterwalder & Pigneur (2010) argue that companies should be flexible and proactive in order to remain successful in the long run, Casadesus-Masanell & Ricart (2011) argue that a good business model should be robust in order to

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sustain its effectiveness over time. Whether it being it flexibility or robustness, the long-term orientation can be identified as a possible factor of influence on successful company survival.

2.4 Business transformation

Having a good business model is in itself not sufficient to assure competitive advantage (Teece, 2010). A good business model today is not necessarily a good business model tomorrow. As the world around us is changing, so are the customer needs. In order to remain competitive retailers must realize that being flexible and able to quickly adapt to changes in the environment are key to their survival (Grewal et al. c.f. Krafft et al., 2010).

There are several terms which all refer to the change of a business, such as business model innovation and business transformation. Although the definition of these various terms are not all exactly the same, the concepts are very similar and at least closely related.

Business transformation is about the reconfiguration of an existing business model, which provides product or service offerings to customers that were not previously available (Chatterjee, 2013; Mitchel & Coles, 2004; Teece, 2010). It is about replacing outdated models. It is a business models response to emerging user needs and pressing environmental concerns (Osterwalder & Pigneur, 2010). Business transformation is a change beyond the current practice in one or more elements of the business model and their interdependencies, influencing the way a company creates and appropriates value. A change in one element of the business model triggers changes in other parts of the system (Sorescu et al. 2011). Business transformation can lead to competitive advantage if the new business model is sufficiently differentiated and difficult to imitate by competitors (Teece, 2010). Continuing to transform the business model provides a parallel way to outperform the competition. If a company successfully improves its business model other companies will follow the same path. However, if a company is able to continuously improve its business model it will always be one step ahead of the competition (Mitchel & Coles, 2003).

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Business transformation is a process of organizational change. A lot has been written about this topic, however many organizations which try to transform their business fail in doing so or are only partly successful (Balogun & Hailey, 2004; Kotter, 1995).

In academic literature there are broadly seen two schools of thought about organizational change (Balogun & Hailey, 2004; Dunphy & Stace, 1988; Weick & Quinn, 1999). The first is episodic change, which is infrequent and discontinuous. It tends to be rather dramatic and revolutionary, and initiated from the top down. Lewin’s (1951) three stages of change – unfreeze, change and refreeze – continues to be a generic recipe for organizational development. According to this model an organization prepares for change, implements the change and then strives to regain stability again as soon as possible (Orlikowski & Hofman, 1997). The second school of thought is continuous change or incremental change. This type of change is ongoing and evolving, leaves more room for change initiatives from the bottom up, and is associated with continuous learning.

Several authors offer more practical guidance for organizational change. Kotter (1995) introduced the ‘eight steps to transforming your organization’, arguing that a change process goes through various phases that each take time. Skipping one or more steps creates the illusion of speed though never gives a satisfying result. Also, critical mistakes in any of the phases can have a devastating impact, negating hard-won games. Kotter’s (1995) list closely corresponds to Kanter et al.’s (1992) ‘ten commandments for executing change’. Kanter et al. (1992) argue that Lewin’s three step model of change is too simplistic and based on the thought that organizations are essentially stable, which in practice is mostly not the case. They also argue that change happens in all directions at once, rather than in one direction at a time, which makes the successful implementation of change in real life much more difficult.

Although Kotter’s (1995) and Kanter et al.’s (1992) n-step models to a greater extent are built on the thought that most organizations in today’s environment are not essentially stable and static, both models can be viewed as elaborations of Lewin’s (1952) unfreeze-change-freeze model. Orlikowski &

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Hofman (1997) however argue that such change models, which treat change as an event to be managed during a specific period, are less appropriate in today’s more turbulent, flexible and uncertain organizational and environmental conditions. In such circumstances continuous change models would be more appropriate, which offer more room for improvisation and initiatives from the bottom up. Orlikowski & Hofman’s (1997) improvisational model recognizes three different types of change: 1. anticipated change, changes that are planned ahead of time and occur as intended, 2. emergent change, unanticipated / unintended changes that arise spontaneously from local innovation and 3. opportunity-based change, which are not anticipated ahead of time but are introduced purposefully and intentionally during the change process in response to an unexpected opportunity, event, or breakdown. The improvisational model was initially developed for managing technological change, however it is not inconceivable that the model also can provide guidance for companies in the retail industry, as this industry is also facing complex, profound change.

In his later work Kotter (2012) also moves away from the idea that organizational changes usually should be planned ahead and implemented from the top-down. He argues that companies’ change processes often fail because in the traditional hierarchy top management only rarely reconsiders its strategy. Traditional hierarchies and processes are optimized for day-to-day business, but as they are inherently risk-averse and resistant to change they cannot handle the challenges of mounting complexity and rapid change. Kotter’s (2012) solution is to develop a dual operating system – a management driven hierarchy (optimizing daily processes and routines) and a strategy network. The strategy network, consisting of a relatively large group of voluntary change-agents from throughout the entire organization, assesses the business, the industry, and the organization, and is able to react with greater agility, speed, and creativity than the existing hierarchy. It complements rather than overburdens the hierarchy, thus freeing the latter to do what it is optimized to do. It makes enterprises easier to run and accelerates strategic change.

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Gilbert et al. (2012) propose a method for successful business transformation in the same line of thought as Kotter (2012). They argue that in order to be able to response in time to market shifts, companies should lead the required business transformation via two routes. The first route “A” should adapt the core business to the realities of the disrupted marketplace, aiming to find the strongest competitive advantage the current business model can sustain in the disruptive landscape. The second route “B” should create a new, disruptive business that will become the company’s next source of growth. The key to making these both transformations work is to make sure that they exchange capabilities; a new organizational process that allows the two efforts to share resources without interfering with each other’s operations. This dual approach allows leaders to save as much of the legacy business as they can while also granting the growth business the time it needs to establish itself.

It can be concluded that there is no consensus in the existing literature about which method of business transformation is most successful in practice. However based on the existing literature the conclusion can be drawn up that the type of change a company chooses to follow can be of influence to whether or not a company’s business transformation leads to the successful survival of the company. Therefor the type of change can be identified as a possible influencing factor to whether or not established companies in the non-food retail middle segment manage to survive.

2.5 Company’s ownership

Which direction a company goes depends to a great extent on the choices the company’s management makes. Especially in times of change, differences in managerial choices could lead to big differences in performances. It is often assumed there is a difference between family owned firms and non-family-owned firms as family-non-family-owned firms would have more time for long-term investments. In the literature it is indeed argued that there is a relationship between the company’s ownership and managerial orientation. Managerial orientation is of big importance when strategic decisions are being made. Differences in managerial orientation could lead to differences in decision making, and thus lead to differences in performance.

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Anderson and Reeb (2003) argued that family-owned firms perform better than nonfamily-owned firms. Since with family-owned firms the family's wealth is mostly closely linked to firm welfare, families may have strong incentives to monitor managers and minimize the free rider problem inherent with small, dispersed shareholders. Another important reason for performance differences is that founding families often maintain a long-term presence in their firms, making that they have longer horizons than other shareholders. This suggest that they are more willing to invest in long-term projects relative to shareholders who have a shorter managerial horizon (Anderson & Reeb, 2003). Shareholders with longer investment horizons suffer less managerial myopia and are therefore less likely to forgo good investments to boost current earnings (Stein, 1988, 1989, c.f. Anderson & Reeb, 2003).

Maury (2006) agrees that family ownership leads to better performances relative to non-family ownership, however he identifies active family ownership – in which the family holds at least one the top two officer positions – as a prerequisite. Passive family ownership does not affect the profitability of family firms compared with nonfamily-firms (Maury, 2006). Although Anderson & Reeb (2003) do not identify active family ownership as a prerequisite, their research also shows that when family members serve as CEO the performance is better compared with family-owned companies led by outside CEO’s. Reason for this could be that the family understands the business and that involved family members view themselves as the stewards of the firm (Anderson & Reeb, 2003). Also, active family ownership lowers the classical agency problem between owners and managers (Maury, 2006). According to the agency theory, people always tend to act in their own best interest, motivated by their own personal monetary payoffs (Eisenhardt, 1989). If a family owned company is led by a CEO from outside, the personal goals of the CEO and the shareholders may not align. If the owner family hold at least one of the two top officer positions the risk of an agency problem would therefore be lower, which could result in performance differences.

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Given that the literature shows that the type of company ownership – family owned versus non-family owned and active family owned versus passive family owned – influences the strategical choices a company makes, and that the differences in strategical choices could lead to differences in performances, the type of company ownership can be identified as a possible factor that influences the successful survival of established companies in the non-food, middle level retail sector.

2.6 Potential influencing factors for successful company survival –

Conceptual model

Based on the literature described above several factors can be identified which can be influencing the successful company survival of established companies in the Dutch non-food retail middle segment. A distinction is made between the potential influencing factors on the business model level, and the potential influencing factors on the level of business transformation.

Business model

The fundamental changes in the retail market demand that established non-food retailers in the middle segment take a critical look at their business model. The changing landscape creates the need to consider how to better address customer needs, as well as how to capture value from providing new products and services. First, literature shows that in order to survive established retailers need to focus on concepts which are demand driven, rather than build on standardization. Retailers must become “truly customer centric in strategy and execution” (Gagnon & Chu, 2005). Therefore, the extent to which established Dutch non-food retailing companies managed to adapt their business model to have a customer centric approach can be identified as a possible influencing factor for successful company survival.

Secondly, the technological developments have had a major impact on how established retailing companies can reach their customers. In 2010 already CBW-Mitex expressed the expectation that cross-channel strategies would win over either online or offline stores in short term. Therefore, today in 2016, the fact whether or not non-food retail companies execute a strong cross channel strategy can be identified as the second potential influencing factor on whether they manage to survive or not.

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Based on the literature one can conclude that all segments of the non-food retail market, being it the low, middle or high segment, provide opportunities. Because of the high competitiveness in and the less distinctive character of the middle segment, retailers in this market segment will need to differentiate themselves from their competitors through other aspects than its market position alone. Following an explicit generic strategy in order to not get ‘stuck in the middle’ (Porter, 1980) could be a strategy leading to competitive advantage, however in some situations a mixed strategy, in which companies combine aspects of differentiation with cost-effectiveness, might be preferred (Miller, 1992). Which option would work best in practice for Dutch non-food retailing companies in the middle segment cannot be concluded based on the literature, but the type of generic strategy can be identified as the third potential influencing factor for successful company survival.

The literature further shows that a good business model should be based on a long term perspective. Although there is no consensus in the literature whether this long term perspective means being flexible in order to remain successful in the long run (Osterwalder & Pigneur, 2010) or being robust in order to sustain effectiveness over time (Casadesus-Masanell & Ricart, 2011), the long-term orientation can be identified as the fourth possible factor of influence on successful company survival.

Business transformation

The changes in the external environment are putting pressure on the established non-food retailing companies in the middle segment. In order for these retailers to retain their raison d’être, many of these retailers must adjust their business model in order to meet the new customers’ needs. A lot has been written about how to successfully execute a business transformation, including the choice between episodic or incremental change (Balogun & Hailey, 2004; Dunphy & Stace, 1988; Weick & Quinn, 1999), several practical guidelines for how to successfully execute a change process (Kanter, 1992; Kotter, 1995) and theoretical descriptions about how to implement change while in the mean time keeping the existing business running (Kotter, 2012; Gilbert et al., 2012). Which change rate or

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the fifth potential influencing factor to whether or not established companies in the non-food retail middle segment manage to survive.

Which direction a company goes depends to a great extent on the choices the company’s management makes. Especially in times of change, differences in managerial choices could lead to big differences in performances. Literature shows that the type of company ownership – family owned versus non-family owned and active family owned versus passive family owned – influences the strategical choices a company makes, and that the differences in strategical choices could lead to differences in performances. Therefore the type of company ownership can be identified as the sixth possible factor that influences the successful survival of established companies in the non-food, middle level retail sector.

Conceptual model

Figure 2: Conceptual model of potential factors of influence on the successful survival of established companies

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3. Methodology

This section discusses the research strategy of a multiple case study, the selection of the cases, the methods that have been used for the data collection and data analysis and finally how the validity and reliability are ensured.

3.1 Research strategy

This study consists of a qualitative multiple case study and has been done by a deductive approach. This qualitative method has been chosen as the best way to get to an overall perspective on the factors which determine the successful survival of established companies in the non-food retail middle segment. Case study can be defined as a “research strategy that involves the empirical investigation of a particular contemporary phenomenon with its real-life context, using multiple sources of evidence” (Saunders et al., 2012). Case study research would be the preferred method, compared to others, in situations when (1) the main research questions are “how” and “why” questions; (2) a researcher has little or no control over behavioral events; and (3) the focus of study is a contemporary phenomenon (Yin, 2009). This research is explanatory in nature, which focuses on studying a situation or a problem in order to explain the relationships between variables (Saunders & Lewis, 2012). The research started with a literature study, which gave more insight about the topic in general, as well as possible answers to the research question. Based on the available literature a set of factors have been identified which were expected to influence the companies chances of survival. This set of factors has been used as a framework when collecting data. However, they were not seen determinative as an open-mind was required to be able to identify other influencing factors from the empirical research when analyzing the data.

When conducting case study research, one can decide to either conduct a single case study or a multiple case study. Single case studies are often used in situations where it represents a unique case. A multiple case study approach is chosen because of its capacity to demonstrate one or both forms of

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The timeframe researched in this study is five years (2011-2016). This timeframe has been chosen as it is short enough to focus on the most recent developments in the cases and the market, but still enables to review the influence of more longitudinal developments such as strategic changes.

3.2 Case selection

Several cases are chosen based on the theory of confirming and disconfirming (Patton, 1990). The combination of cases chosen based on the prediction that they will show similar results as each one (literal replication), and cases in which a contextual factor is deliberately different predicting a variation in outcome (theoretical replication), could produce strong support for the finding of the study (Saunders et al., 2012; Yin, 2009). The focus of this research lays on companies positioned at the middle level of the Dutch retail market. Therefore ten cases have been selected in this area: five cases (V&D, Macintosh, DA, Etam Group, USG) which didn’t manage to survive, two cases (HEMA, Blokker) which are currently struggling to survive, and three cases (Hunkemöller, H&M, Zara) which seem to successfully do so. Each organization is a holistic single-unit of analysis. The cases are chosen based on the fact that they currently take or have taken up until recent an important position in the Dutch non-food retail landscape.

Table 1: Detailed description of the selected cases Company

V&D Type of business Department store

Stores 62 stores in the Netherlands

Ownership Sun Capital Partners, Inc. – private equity firm (since 2010)

Founding 1887

Employees Approx. 10.000

Situation (February 2016)

Declared bankrupt in December 2015 Macintosh Type of business Retailing company, 9 store concepts

Core business: Shoes

Stores 880 stores in 4 countries, of which over 400 in the Netherlands Ownership Listed company (since 1962)

Founding 1949

Employees Approx. 10.000

Situation (February 2016)

Declared bankrupt in December 2015

DA Type of business Drugstores

Stores 266 stores, 7 under own management and 266 stores owned by franchisees Ownership Aletra Capital Partners – private equity firm (since 2007)

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