Chapter 1

Perspectives on Retailing

Retailing in Philippine Setting

1. Local and international brand continues to expand in the country

2. Real estate developers are diversifying into retail segment to accommodate consumer demand
for shopping convenient.

3. Retail-tainment used by more developers to give Filipino shoppers the “overall retail
experience” incorporating food courts, cinemas, ice skating rinks, bowling alley, children’s
playground & pet parks into shopping mall.

4. Convenient place to stay in “ unwind and shop”

Retailing

 Consist of the final activities and steps needed to place a product on the hands of the ultimate
consumer or to provide a service to the consumer.

Distinguishing Between a Retailer and Retailing

In simple terms, RETAIL means that you, the product manufacturer or producer, sell your
product directly to the consumer. Selling wholesale means you typically sell your product in bulk
quantities to a “middle man” who in turn sells it to the consumer (i.e. other RETAILERS)

Retailing the process of selling

Manufacturer Consumer

Retailer is a person or business

Wholesaler Middle Man Consumer

Retailing in the Philippines

The first few months of 2018 were positive for retailers as consumers enjoyed higher take-home
pay as a result of the newly implemented Tax Reform for Acceleration and Inclusion (TRAIN) law.
However, economic and policy changes also eventually resulted in higher inflation towards the latter
part of 2018, and with this, consumers started to rein in their spending amidst higher prices

https://www.euromonitor.com/retailing-in-the-philippines/report
The Nature of Change in Retailing Today

Change is a result of at least four different catalysts:

 E-tailing

 Price competition

 Demographic shifts

 Store size

E-tailing

 Retailing activity that occurs online

 Represents “the great unknown” for retail managers as current online retail sales
account for less than 5%.

 With the growth of the 2nd generation web, the Internet has become much more
interactive and social in nature. This has important implications for retailers.

E-tailing’s impact on retailers and the supply chain:

 Has Led to a Shift of Power

 Many like to talk about the “powerful” manufacturers (e.g., P&G) or retailers (e.g.,
Walmart), but Power is shifting from these firms to consumers

 Traditional brick-and-mortar retailers at a loss

Brick-and-mortar retailers

- retailers that operate out of a physical building

Why the shift in power?

“Information is Power”

 The information dissemination capabilities of the Net make consumers better

informed when transacting and negotiating with retailers.

 Channel surfing is growing threat to all retailers, but particularly traditional

brick-and-mortar retailers

What is “channel surfing”?

- When the customer gets needed product information within a store and then chooses to order
the product online for a lower price or to avoid paying state sales tax.
Price Competition

- Philippine market is price sensitive, whether shopping online or at a brick-and-mortar store.

 Price conscious consumers are naturally price sensitive*

Price sensitivity*
 The degree to which price is a deciding factor in a consumer’s purchase
decision

 High (low) price sensitivity occurs when the percentage change in

demand is greater (lower) than the percentage change in price

Demographic Shifts

 Several changes in demographic factors over the last decade have impacted retail strategy.

1. The fluctuating birthrate,

2. The growing importance of Generation Y consumers,

3. The movement of Generation X into middle age,

4. The growing number of Baby Boomers entering retirement,

5. And the increasing number of women relative to men attending and graduating from college and
concurrent rise in unemployment among men relative to women.

To meet these ever changing and increasing number of needs, successful retailers will be those that…

 become more service-oriented

 offer better value in price and quality

 are more promotion-oriented, and

 are better attuned to their customers’ needs.

Shrinking birthrates and greater variance in consumers’ needs means sustainable profit growth
will result from…

- Increasing same-store share

- market share

- reducing expenses without reducing services to the point of losing customers

Same-store sales

- Compares an individual store’s sales to its sales for the same month in the previous year

Market share

- Retailer’s total sales divided by total market sales

Store Size

 Prior to the recession, emphasis on increasing store size

Why?

 “The more merchandise customers see, the more they will buy.”

Result:

 Growth in Scrambled merchandising

SCRAMBLED MERCHANDISING

-When a retailer handles many different and unrelated items.)

Yet supersized stores raise several major costs, namely:

 Rent

 Inventory Carrying Costs (ICCs)

 Labor Costs

Recent recession has altered this trend somewhat…

Growing trend towards reducing store size (when possible).

 Doing so:

 Lessens aforementioned “major cost drivers”

 Addresses consumers’ desire for convenience

 Those who are “locked-in” to long-term leases or own their own buildings are pushing
ahead with greater scrambled merchandising.
Category Killer

- is a retailers that carries such a large amount of merchandise in a single category at such good
prices that it makes it impossible for customers to walk out without purchasing what they need, thus
“killing” the competition.

(Example Home Depot, Best Buy and Toys “R” Us)

Categorizing Retailers

The five most popular schemes to categorize retailers:

1. Census bureau (i.e., NAICS)

2. Number of outlets

3. Margin versus Turnover

4. Location

5. Size

1. Census Bureau

NAICS Code ( North American Industry Classification System )

 Classifies all retailers using a general set of codes

 May be either a 3- or 4-digit code

Single Unit Retailers

- such as neighbourhood grocery stores

2 to 10 units

- independent stores

11+ units

- chain stores or large chains

- are generally regional or national and can take full advantage of the economies of scale that
centralized buying, accounting, training, advertising and

Information systems and a standard stock list.

2 types of Stock list

1. Standard Stock list – is a merchandising method in which all stores in a rental chain stock the
same merchandise

2. Optional Stock list – merchandising method in which each store in a retail chain is given the
flexibility to adjust its merchandise mix to local taste demands.

What is merchandising in retail?

Merchandising. ... At a retail in-store level refers to the variety of products available for sale and
the display of those products in such a way that it stimulates interest and entices customers to make a
purchase.

Channel advisor or channel captain

- is the institution (manufacturer, wholesalers, broker or retailer) in the marketing channel that
is able to plan for and get other channel institutions to engage an activities they might not otherwise
engage in. Large store retailers are often able to perform the role of channel captain.

Private-label branding

- may be store branding, when a retailer developed its own brand name and contracts with
manufacturer to produce the product with retailer’s brand, or designer lines, where a known designer
develops a line exclusively for the retailer.

3. Margin Versus Turnover

- Retailers can also be classified with regard to their gross-margin percentage and rate of
inventory turnover.

Categorizing based upon:

 Gross margin percentage

- A measure of profit ability derived by dividing gross margin by new sales

 Inventory turnover

- Refers to the number of times per year, on average, that a retailer sells its inventory
Gross Margin

- is the difference between net sales and cost of goods sold

Operating Expenses

- are those expenses that a retailer incurs in running the business other than the cost of the
merchandise

High performance retailer

- are those retailers that produce financial results substantially superior to the industry average.

Four basic types using the Concept of Margin and Turnover

1. Low-margin/ low turnover retailer

- is one that operates on a low gross margin percentage and a low rate of inventory turnover

2. High margin/ low turnover retailer

- is one that operates on a high gross margin percentage and a low rate of inventory turnover

3. Low margin/ high turnover retailer

- is one that operates on a low gross margin percentage and a high rate of inventory turnover.

4. High margin / high turnover retailer

- is one that operates on a high gross margin percentage and a high rate of inventory turnover

4. Location

 Retailers are now aware that opportunities exist in new, non-traditional retail areas.

 Retailers are reaching out to alternative retail sites, rather than simply renovating existing
stores.

 Today, the most significant of the new, non-traditional shopping locations could be the one
which combines culture with entertainment or shopping.

5. Size

Refers to either sales volume or the number of employees

 Operating performance tends to vary according to size

- Larger firms usually have lower operating costs per sales dollar.

 While size has been useful in the past, technology advances bring this logic into
question.
-For example: The fully automated retailer

A Retailing Career

Someone once said

“ Managing a retail store is an easy job, All you have to do is get consumers to visit you store (traffic) and
then get these consumers to buy something (convert the traffic into customers) while operating at a
lower cost than your competition (financial management). ”

Assuming that this is simplistic statement is correct and forgetting what is involved in each of
these tasks, what type of person is need to manage a retail store?

A Retailing Career

Exposure to all business disciplines…

 Economics - Forecasting sales growth

 Fashion – Predicting behavior and future trends.

 Marketing - Determining which styles will be "in," ordering and stocking these styles,
promoting them and properly pricing them.

 Finance - Reducing store expenses.

 Management – Managing schedules & hiring employees

 Logistics – Managing the flow of merchandise

 Information Systems - Analyzing sales and other data to determine opportunities for
improved management practices.

 Accounting - Obtaining bottom line sales and profit figures.

Store Management

- the retailing career path that involves responsibility for selecting, training and evaluating
personnel, as well as in-store promotions, displays, customer service, building maintenance and
security.

Buying

- the retailing career path whereby one uses quantitative tools to develop appropriate buying
plans for the store’s merchandise lines.
Common Questions about a Retailing Career

1. Salary – keep in mind that most or all of the profits in a rapidly growing retail enterprise need to
be retained to finance the growth.

2. Career Progression – a person capable of handling increasing amount of responsibility can move
up quickly

3. Geographical Mobility – retailing exist in all geographic areas. A person may stay on one
geographic area if he or she desires, however this may cost that person some opportunities for
advancement and salary increase

4. Societal Perspective – merchant are considered respected. It is not the profession that dictates
one’s contribution to society but the soundness of one’s ethical principles.

Prerequisite for Success

1. Hard Work

2. Analytical Skills

3. Creativity

4. Decisiveness

5. Flexibility

6. Initiative

7. Leadership

8. Organization

9. Risk Taking

10. Stress Tolerance

11. Perseverance

12. Enthusiasm

Prerequisite for Success

1. Hard Work

2. Analytical Skills (able to solve problems through numerical analysis of facts and data in order to
plan, manage an control)

3. Creativity (ability to generate and recognize novel ideas and solutions)

4. Decisiveness (ability to make rapid decision and to render judgement, take actions and commit
oneself to a course of action until completion)
 5. Flexibility (ability to adjust to the ever-changing needs of the situation)

6. Initiative (real managers are doers. They must have the ability to originate action rather than
wait to be told what to do)

7. Leadership (ability to inspire the team members to trust and respect your judgement and the
ability to delegate, guide and persuade the team)

8. Organization (ability to establish priorities and plan and follow through to achieve result)

9. Risk Taking (willing to take calculated risk based on thorough analysis and sound judgement and
should be willing to accept responsibility for the results)

10. Stress Tolerance (must be able to perform consistently under pressure and to thrive on constant
change and challenge.)

11. Perseverance (doing something despite difficulty or delay in achieving success)

12. Enthusiasm (intense and eager enjoyment, interest or approval)

The Study and Practice of Retailing

Analytical Method

 Manager is finder and investigator of facts.

Creative Method

 Manager is conceptual and very imaginative.

Two-Pronged Method

 Manager who employs both approaches.