Chapter 2

Types of Retailers

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Trends in the Retail Industry

Category Specialist Supercenters (superstores)

Growing Diversity of Formats

Electronic Retailers
Increasing Industry Concentration Enabled by:

Efficient Distribution Systems

Efficient Information and Communication Systems Centralization of Decision-Making

Globalization

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Globalization
Maturation of Domestic Markets Skills in the management of information and distribution systems Removal of Trade Barriers Homogenization of tastes across the world

Factors that have encouraged globalization

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Retailer Characteristics
Discount Store vs Department Store.
Providing more services, greater assortment increases costs

Price-Cost Tradeoff

Type of Merchandise - North American Industry Classification System (NAICS) codes Variety and Assortment Variety (breadth) - number of merchandise categories a retailer offers Assortment (depth) - number of different items (SKUs) in a merchandise category

Customer Services Offered

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Food Retailers

Conventional Supermarkets - Self-Service Food stores 30 40 K SKUs Big-box food retailers

supercenters - 150,000 - 220,000 sq. ft stores
offer a variety of food and nonfood merchandise (superstore + discount store)

hypermarkets
generally offer more food items than supercenters.

warehouse clubs

Convenience stores

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Trends in Food Retailing

Time ====>Eating======>Meal Pressure Out More Solutions How should grocery stores adapt?

Changing Food Consumption Patterns

Competition from Discount Stores

Focus on reducing costs, increasing efficiency

Efficient consumer response (ECR)

Just in time inventory management Improved assortment planning. Supermarkets are offering more freshly prepared items Greater assortment of organic foods

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Characteristics of General Merchandise Retailers

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General Merchandise Retailers

Examples
Department Stores Full-line Discount Stores Specialty Stores Category Specialists Home-Improvement Centers Off-Price Retailers Extreme Value Retailers Drugstores

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Full-Line Discount Stores

Big Three -- Wal-mart, Kmart, Target Competition from Category Specialists -Toys R Us, Circuit City, Sports Authority Continue to Reduce Costs More Focus on Apparel and Electronics Higher Margins Greater competition against department stores

Why is Toys R Us Doing Badly?

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Specialty Stores

Limited number of complementary merchandise categories. Examples

Sephora cosmetics and perfume specialty store Hot Topics

Mall-Based Apparel Retailers

Decline in Mall Shopping and Apparel Sales
Lack of New Fashions Less Interest in Fashion Increase Price Consciousness

Lifestyle Formats (Old Navy, Ramparts)

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Category Specialists

Big-box discount specialty stores)

Narrow variety deep assortment Destination Stores Incredible Growth Low Price and Service Wholesaling to Business Customers and Retailing to Consumers

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Department Stores

Three categories
1. Upscale high fashion chains - Neiman Marcus 2. 2nd tier Macys 3. 3rd tier Sears, JC Penney, Kohls

Carry Broad Variety Offer considerable customer services Organized into separate departments

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Department Stores

Competition from Discount Stores on Price, Specialty Stores on Service, Depth of Assortment Lower Cost By Reducing Services (?) More Sales (?) Focus on Apparel, Soft Home Improve Services Develop Private Labels, Exclusive Brands

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Drug Stores

Competition from Supermarkets and Discount Stores - Pharmaceuticals

Also mail-order pharmacies. Stand-Alone Sites with Drive-In Windows Convenience Store Front End

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Off-Price Retailers (Apparel)

T.J. Max and Marshalls, Ross Stores, and Burlington Coat Factory

Opportunistic Buying -- Price not Brand

Hurt by Sales in Department Stores (especially value department stores and online stores) Increasingly Buying First Line Merchandise.

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Extreme Value Retailers

Dollar General Family Dollar Stores They are small full-line general merchandise discount stores. Limited merchandise assortment and very low prices.

Much smaller than traditional discount stores

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Home Improvement Centers

There are exaples of category specialists

Home Depot, Lowes How does the aging of the baby-boom generation influence their strategy? Should such stores attempt to attract women customers? Why?

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Warehouse Clubs (Food, Hard Goods)

Sell limited assortment of products items at very low prices and in large packs (quantities). Often attract higher income customers Supermarkets now compete by selling items in large packs and by improved efficiency. Warehouse Clubs Focus More on Business Customers

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Hypermarkets
Very large retail store offering low prices
Hypermarkets strong internationally, but not in U.S.
Strict zoning laws in metropolitan areas in Europe.
Few retail alternatives in Latin America and Asia

US consumers find them too time consuming

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Nonstore Retailers

Electronic Retailing

Catalog / Direct Mail Retailing

General Merchandise Catalog Retailer Specialty Catalog Retailer

Direct Selling Retailer

Telephone Retailer TV Home Shopping Retailer

Vending Machine Retailer

Most nonstore retailers offer consumers the convenience of time and place utility. Historically, catalog retailers had the greatest appeal to rural consumers.

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Summary

Many New Types of Retailers, Increased Diversity to Meet Diverse Needs Most People Shop at All Types Depending on Situations - Growth in Cross-Shopping

Non-store retailers in Japan

Very popular in Japan. People use cell phones to make payments
http://www.isop.ucla.edu/eas/japan/2minute/vendingmachines.htm

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Services vs. Merchandise Retailers

Intangibility

- Problems in Evaluating Service Quality - Performance of Service Provider Simultaneous Production and Delivery - Importance of Service Provider Perishability

- No Inventory, Must Fill Capacity

Inconsistency of the Offering - Importance of HR Management

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Services vs. Merchandise Retailers

All Retailers -- Develop Strategy, Location Merchandise Retailers -- Inventory Control and Merchandise Management Important Services Retailers -- Store Operations and Human Resource Management Important

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Types of Retail Ownership

Independent, Single Store Establishments

Retail-Sponsored Cooperative is an organization owned & operated by small independent retailers Wholesale-Sponsored Voluntary Cooperative is an organization operated by a wholesaler

Corporate Chains Franchises

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What is Franchising?

Franchising is a contractual agreement between a franchisor and the franchisee that allows the franchisee to operate a retail outlet using the name and format developed and supported by the franchisor. Why is it popular?

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Reasons for Franchising Growth

Technological advances

Profitable utilization of capital resources

Attainment of the American Dream Demographic expansion Product/service consistency

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Trends In Corporate Chains

Consolidation - Why?

- Lower merchandise costs.

-

Amortize fixed costs (IT, Promotion over larger sales volume).

Focus - Stick to Your Knitting