RETAILING

Waltons .5 & .10

Irwin/McGraw-Hill

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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.
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BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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 offered by most retailers.
Irwin/McGraw-Hill

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

The McGraw-Hill Companies, Inc., 2000

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 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

Saturn

Levi Strauss www.levi.com

Toys R Us www.toysrus.com

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MARKETING, 6/e
BERKOWITZ

_____
KERIN HARTLEY RUDELIUS

_____

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Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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
KERIN HARTLEY RUDELIUS

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
Irwin/McGraw-Hill

Drug and Discount

Home Improvement Home Shopping Specialty Retailers
MARKETING, 6/e

BERKOWITZ

The McGraw-Hill Companies, Inc., 2000

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 and Korea.
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

MARKETING, 6/e

The McGraw-Hill Companies, Inc., 2000

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 MARKETING, 6/e
BERKOWITZ

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

325

650
RUDELIUS Irwin/McGraw-Hill

Sales ($billions) KERIN HARTLEY

The McGraw-Hill Companies, Inc., 2000

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.
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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

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BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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
Irwin/McGraw-Hill

1,934
65

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BERKOWITZ

KERIN

HARTLEY

RUDELIUS

The McGraw-Hill Companies, Inc., 2000

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.
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BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

Differences in Store Concepts

DISCOUNT STORE 70,000 SUPERCENTER HYPERMARKET

Average size (in square feet) Number of employees Annual Sales ($ millions per store) Gross margin Number of items stocked
MARKETING, 6/e

150,000

230,000

200-300 $10-$20

300-350 $20-$50

400-600 $75-$100

18%-19% 60,000-80,000
KERIN HARTLEY

15%-16% 100,000
RUDELIUS

7%-8% 60,000-70,000
Irwin/McGraw-Hill

BERKOWITZ

The McGraw-Hill Companies, Inc., 2000

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
MARKETING, 6/e

Active retailer involvement

BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

High

The McGraw-Hill Companies, Inc., 2000

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.
Irwin/McGraw-Hill

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

The McGraw-Hill Companies, Inc., 2000

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.
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

Television Home Shopping

TV home shopping is possible when 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 inability of consumers to control the items they see.
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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.
MARKETING, 6/e
Irwin/McGraw-Hill

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

The McGraw-Hill Companies, Inc., 2000

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 businesses.

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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 dual-career households reduces the number of potential buyers at home. Many direct selling retailers are expanding into international markets to offset the decline in domestic sales.
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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.

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

Retail Positioning Matrix

Broad

Kmart

Bloomingdales

Breadth of product line

Just for Feet

Tiffany

Narrow Low
MARKETING, 6/e
BERKOWITZ KERIN

Value added
HARTLEY RUDELIUS

High
Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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 and valued by consumers.
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

The Retailing Mix

The retailing mix includes:

1. Goods and services

2. Physical distribution
3. Communications tactics chosen by a store.
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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)

MARKETING, 6/e
BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

Retail Pricing Terminology

Markup refers to how much should be added 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.

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

Retail Pricing Terminology

Markdown occurs when the product does 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 below wholesale prices.
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

Store Location Types of Store Locations

Central business district
regional shopping centers community shopping centers

strip location
power center
MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

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

MARKETING, 6/e

BERKOWITZ

KERIN

HARTLEY

RUDELIUS

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000

Market share or profit

Early growth Value-retail stores

The Retail Life Cycle

MARKETING, 6/e

On-line retailers
Single-brand stores

BERKOWITZ

Single-price stores Factory outlet stores

Accelerated development

KERIN HARTLEY

Warehouse clubs
Fast food outlets Convenience stores Supermarkets Department stores

Profit

Market share

Maturity Decline

RUDELIUS Irwin/McGraw-Hill

Malls (?)
Catalog Retailers General store

The McGraw-Hill Companies, Inc., 2000

Future Changes in Retailing

Impact of Technology Changing Shopping Behavior Importance of Brands

MARKETING, 6/e
BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 2000