RETAILING

Waltons .5 & .10

Irwin/McGraw-Hill

Definition of Retailing
Retailing includes . . . .
all activities involved in selling, renting, and providing goods and services to ultimate customers for personal, family or household use. In the channel of distribution, retailing is where the

customer meets the product. It is through retailing that

exchange occurs.

Retailing Creates Value

Retailings economic value is represented by: 1. People employed in retailing, and 2. The total amount of money exchanged in retail sales. Utilities provided by retailers create value for customers. Time, place, possession, and form utilities are

Comic Strip

Which Company Best Represents Which Utilities?

Wells Fargo
One of the best-run banks in the United States, Wells Fargo is intensifying its drive to reach retail customers by opening minibanks in supermarkets. This new form of banking is designed to complement ATMs, which already dispense 75% of the banks cash.

Saturn

Saturn dealers have adopted a one-price strategy that eliminates the need for negotiating. Instead, all customers are offered the same price. Test drives, financing, trade-ins, and leasing are all offered to encourage customers to purchase a Saturn. Levi Strauss & Co. now offers the Levis Original Spin program which allows customers to create their own jeans by selecting from three models, five leg types, two flys, and many color and fabric options. The jeans are delivered in 2 to 3 weeks for $55. A distinctive toy store with a backwards R, this company is what every kid dreams about. Walking into a Toys R Us store is like living under a Christmas tree. Unlike most stores, which reduce their space allotted to toys after the holiday season, a huge selection of toys is always available at Toys R Us. Can you match them? Time Place Possession Form

Levi Strauss www.levi.com

Toys R Us www.toysrus.com

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The Largest Retailers (2005 Sales)

Category
Department stores Apparel Consumer Electronics

Retailer(s)
Sears (K-Mart) J C Penney Limited TJX Circuit City Best Buy Wal-Mart Target Home Depot Lowes Service Merchandise Fingerhut Costco Toys R Us

Sales ($, in billions)

49.124 18.781 9.699 16.058 10.472 27.433 315.654 52.620 81.511 43.243 3.327 1.912 52.935 11.194

Drug and Discount

Home Improvement Home Shopping Specialty Retailers

Global Economic Impact of Retailing

Four of the 30 largest businesses in the U.S. are retailers. In 1997, Wal-Marts $119 billion in sales surpassed the gross domestic product of Finland for the same year. Sears, Wal-Mart, Kmart, and JC Penny together employ more than 1.6 million people. Wal-Mart has 603 stores outside the U.S., including joint ventures in China

Retail Sales By Type of Business

Automotive dealers Food stores General merchandise group Eating and drinking places Gasoline service stations Building material, hardware, etc. Furniture and home furnishings stores Apparel and accessory stores Drug and proprietary stores Liquor stores Other 0 325 650

.9 3.8 9.6 4.9 5.7 5.9 6.2 9.2 12.9 16.7 24.5

Sales ($billions)

Classifying Retail Outlets

Retail outlets can be classified in several ways: -- Form of ownership. Who owns the outlet. -- Level of service. The degree of service provided to the customer. -- Merchandise line. How many different types of products a store carries and in what assortment.

Classifying retail outlets

METHOD OF CLASSIFICATION
Form of ownership

DESCRIPTION OF RETAIL OUTLET

Independent retailer Corporate chain Contractual system Retailer-sponsored cooperative Wholesaler-sponsored voluntary chain Franchise Self-service Limited service Full-service Depth Single line Limited line Breadth General merchandise Scrambled merchandise

Level of service

Merchandise line

The possibilities and costs of franchising

FRANCHISE TYPE OF BUSINESS TOTAL STARTUP COSTS NUMBER OF FRANCHISES

McDonalds Merry Maids Jiffy Lube Mail Boxes Etc. Duds N Suds

Fast-food restaurant Cleaning Service

$385,000-$520,000 $27,500-$40,500

19,500 700 667 2,953 80

Automobile fluid service $208,000-$229,000 Postal Services $55,000-$75,000

Laundry and snack bar $60,000

Radio Shack
Barbizon

Electronic accessories
School of Modeling

$67,500
$69,500-$124,000

1,934
65

There are the following types of retailers by marketing strategy:

Department stores - very large stores offering a huge assortment of goods; often bear a resemblance to a collection of specialty stores. A retailer of such store carries variety of categories and has broad assortment at average price. They offer considerable customer service. Discount stores - tend to offer a wide array of products and services, but they compete mainly on price offers extensive assortment of merchandise at affordable and cut-rate prices. Normally retailers sell less fashion-oriented brands. Supermarkets - sell mostly food products; Warehouse stores - warehouses that offer low-cost, often high-quantity goods piled on pallets or steel shelves; warehouse clubs charge a membership fee; Variety stores - these offer extremely low-cost goods, with limited selection General store - a rural store that supplies the main needs for the local community; Convenience stores: is essentially found in residential areas. They provide limited amount of merchandise at more than average prices with a speedy checkout. This store is ideal for emergency and immediate purchases. Hypermarkets: provides variety and huge volumes of exclusive merchandise at low margins. The operating cost is comparatively less than other retail formats

Contd

Malls: has a range of retail shops at a single outlet. They endow with products, food and entertainment under a roof. Category killers or Category Specialist: By supplying wide assortment in a single category for lower prices a retailer can "kill" that category for other retailers. For few categories, such as electronics, the products are displayed at the centre of the store and sales person will be available to address customer queries and give suggestions when required. Other retail format stores are forced to reduce the prices if a category specialist retail store is present in the vicinity. E-tailers: The customer can shop and order through internet and the merchandise are dropped at the customer's doorstep. Here the retailers use drop shipping technique. They accept the payment for the product but the customer receives the product directly from the manufacturer or a wholesaler. This format is ideal for customers who do not want to travel to retail stores and are interested in home shopping. However it is important for the customer to be wary about defective products and non secure credit card transaction. Example: Amazon, Pennyful and Ebay

Depth and Breadth of Product Line

Depth of product line means that the store carries a large assortment of each item, such as shoe stores that offer running shoes, dress shoes, and childrens shoes. Breadth of product line refers to the variety of different items a store carries. -- scrambled merchandising refers to retailers that offer several unrelated product lines in a single store. -- hypermarkets are very large retail outlets that have the goal of offering customers everything at one outlet. -- Supercenters are retailers that combine a typical merchandise store with a grocery store.

Breadth vs. Depth of Merchandise Lines

Breadth: Number of different product lines Mens Clothing Shoes Appliances CDs

Depth: Number of items within each product line

Nike running shoes Florsheim dress shoes Top Sider boat shoes Adidas tennis shoes

Amana refrigerator Sony TV sets JVC videocassette recorders General Electric dishwashers Sharp microwave ovens

Classical Rock Jazz Country Western

Suits Ties Jackets Overcoats Socks Shirts

Forms of Non-store Retailing

High Active customer involvement
Direct selling
Telemarketing On-line retailing Television home shopping

Direct mail and catalogs Automatic vending

Low Low Active retailer involvement High

Automatic Vending

Non-store retailing that makes it possible to serve customers where stores cannot. Maintenance and operating costs are high. Small convenience products are available in vending machines. Of the 3 million vending machines now in use, 1.8 million are soft drink machines.

Direct Mail & Catalogs

Marketing efficiency is improved through segmentation and targeting. Customer value is enhance by providing a fast and convenient means of making a purchase. In 1998 Americans increased their catalog spending to $87 billion. A typical household receives 50 catalogs each year.

Television Home Shopping is possible when TV home shopping

consumers watch a shopping channel on which products are displayed; orders are placed over the telephone. Two popular home shopping programs reach 60 million homes and have combined sales of $2 billion. TV home shopping programs traditionally attract 40-50 year old females. Limitations of TV shopping have been the lack of buyer-seller interaction and the

Online Retailing
Online retailing allows consumers to search for, evaluate, and order products through the Internet. The advantages of online retailing are: ability to comparison shop privacy variety

Forecasts suggest that current annual sales of $10 billion could reach $100 billion in just a few years.

Telemarketing

Telemarketing involves using the telephone to interact with and sell directly to consumers.

According to the American Telemarketing Association, telemarketing sales exceed $500 billion. As the use of telemarketing grows, consumer privacy has become a topic of discussion among consumers, Congress, the Federal Trade Commission, and

Direct Selling

Direct selling involves direct sales of goods and services to consumers through personal interactions and demonstrations in their home or office. Industry sales are more than $16 billion, but are declining in the U.S. as retail chains begin to carry similar products at discount prices, and the increasing number of dualcareer households reduces the number of potential buyers at home. Many direct selling retailers are expanding into international markets to offset the

Retail Positioning Matrix

The retail positioning matrix positions retail outlets on two dimensions: breadth of product line and value added.

Breadth of product line is the range of products sold through each outlet. Value added includes such elements as location, product reliability, and/or prestige.

Retail Positioning Matrix

Broad

Kmart

Bloomingdales

Breadth of product line

Just for Feet

Tiffany

Narrow Low Value added High

Key to Retail Positioning

For a store to be successfully positioned, it must have an identity which has some advantages over competitors, and at the same time are recognized

The Retailing Mix

The retailing mix includes: 1. Goods and services 2. Physical distribution
3. Communications

The Retailing Mix

Store location Distribution centers Warehousing Transportation Handling goods Packing
Variety and assortment Sales assistance Customer services Pricing Credit Guarantees and exchanges Alterations and adjustments Store image and atmosphere Parking Delivery

Personal selling Consumers Advertising Window displays Internal displays Public relations Store layout Catalogs Telephone sales

Implications of the Retail Positioning Mix

Types of Retailers
High Value-added/ Broad Line (Bloomingdales)

Keys to Success
Creative merchandising image-excitement, leader High price/high margin Store Ambiance Economies of scale--volume Image--good guys, conveniences Low price/low margin Low or self-service Efficiency of operations Unique of high quality products Image--exclusive specialty High price/high margin Personal service/advice Expensive presentation Specialty mass merchandising Image--value conscious, consistent Low price, loss leaders Little or self-service Cookie-cutter stores

Low Value-added/ broad line (Kmart)

High Value-added/ narrow line (Tiffany)

Low Value-added narrow line (Just for Feet)

Retail Pricing Terminology much should be added Markup refers to how

to the cost the retailer paid for the product to reach a final selling price. Original markup is the difference between the retailers original cost and initial selling price. The maintained markup is the difference between the final selling price and retailer cost and is also the gross margin.

Retail Pricing Terminology the product does Markdown occurs when

not sell at the original price and an adjustment is necessary. Shrinkage is theft of merchandise by customers and employees. Off-price retailing involves selling brand name merchandise at lower than regular prices. The difference between the off-price retailer and a discount store is that off-price merchandise is bought by the retailer from manufacturers excess inventory at prices

Store Location
Types of Store Locations

Central business district

regional shopping centers community shopping centers

strip location
power center

The Wheel of Retailing

As more time passes, outlet adds still more services
2. Outlet now has: Higher prices Higher margins Higher status 3. Outlet now has: Still higher prices Still higher margins Still higher status

As time passes, outlet adds services

Passage of time

1. Outlet starts with: Low prices Low margins Low status

4. New form of outlet enters retailing environment with characteristics of outlet in Box 1

Market share or profit

Early growth Value-retail stores

On-line retailers
Single-brand stores

Single-price stores Factory outlet stores

The Retail Life Cycle

Accelerated development

Warehouse clubs
Fast food outlets Convenience stores Supermarkets Department stores

Profit

Market share

Maturity Decline

Malls (?)
Catalog Retailers General store

Future Changes in Retailing

Impact of Technology Changing Shopping Behavior