Second Thoughts About a Strategy Shift
The retail field has gone through a lot of change recently with the introduction of online shopping. Businesses must adapt to this new environment, which is what Augustín Rey is trying to do with Emilia in this case study. His current plan is to renovate all of the stores, adding entertainment areas with live music and movies playing to attract a younger customer base. He also plans to phase out discounts. Our group believes that Augustín should do what the chairman of Emilia, Nicomedes Mallo, said to do: continue the revolution, just a slower modified approach.
Emilia is losing hundreds of millions of euros and losing customers, but there is still hope for Augustín’s plan to work. Emelia, since the beginning of Augustín’s plan, has lost €211 million. Revenue is down 19%. Customer traffic is down 10%. This lack of success is more than just bumps in the road on the way to success; they are serious problems that indicate fundamental flaws in Augustín’s plan. Prior to the plan, 72% of Emilia’s sales were on discounted items. Suddenly and immediately stopping these sales alienated much of their customer-base. While this change in identity is exactly what Augustín wanted, it is happening too fast, causing customers to be confused with what Emilia is trying to do.
While Augustín should follow what Nicomedes Mallo recommended, there are still strong reasons to continue this strategy long-term. A major issue for the business was relying on constant promotions, which were not sustainable. Discounts had to increase from 38% to 60% on average just to drive sales. We also believe that honest brand positioning can build trust and loyalty over time, but that kind of behavioral change will not happen quickly. Customers need time to adjust to the pricing shift Emilia is moving toward. Augustín’s strategy also showed some potential, with a strong first quarter and interest from younger customers. Overall, the new vision could better position Emilia for future growth.
Augustín should not abandon his vision for Emilia but instead modify his approach to his plan. Maintaining the long-term strategy avoids the current reliance on heavy discounting and supports brand repositioning at the same time. However, to stabilize Emilia’s performance, he should reintroduce limited promotions, improve communication of value to customers, and implement changes more gradually rather than abruptly.
A hybrid pricing model, which would combine everyday low pricing along with selective promotions, would help to balance short-term performance with the long-term goals that he has for the company. Along with this, Augustín should pilot some of the elements of his plan in select stores, refine marketing to better educate customers on Emilia’s discounts, and segment his approach to the two different sets of customers that he wants to appeal to, allowing him to retain existing customers while also attracting new ones. Overall, this balanced strategy offers the best path to improving performance, as well as preserving the company’s long-term transformation.