CHAPTER 1

INTRODUCTION TO THE WORLD OF RETAILING

WHAT IS RETAILING?
Retailing – a set of business activities that adds value to the products and
services sold to consumers for their personal or family use
A retailer is a business that sells products and/or services to consumers for
personal or family use.

EXAMPLES OF RETAILERS
• Firms that are retailers and wholesalers - sell to other business as well as
consumers:
Office Depot, The Home Depot, United Airlines, Bank of America, Costco

THE RETAILER’S ROLE IN A SUPPLY CHAIN

• Retailers are the final business within a supply chain which links manufacturers
to consumers.
• A Supply Chain is a set of firms that make and deliver a given set of goods and
services to the ultimate consumer.

MANUFACTURING, WHOLESALING AND RETAILING

• Vertical Integration – firm performs more than one set of activities in the
channel
 Ex: retailer invests in wholesaling or manufacturing
• Backward Integration – retailer performs some distribution and manufacturing
activities, such as operating warehouses or designing private label merchandise.
• Forward Integration – manufacturers undertake retailing activities
 Ex: Ralph Lauren (New York Jones, Liz Claiborne) operates its own stores
 Large retailers engage in both wholesaling and retailing
 Ex: Wal-Mart, Lowe’s, Safeway, Brown Shoe Company

HOW RETAILERS ADD VALUE

o Provide Assortment
Buy other products at the same time (brands, designs, sizes, etc.)
■ Break Bulk
Buy it in quantities customers want
■ Hold Inventory
Buy it at a convenient place when you want it
 ■ Offer Services
■ Increasing value of products and services

SOCIAL AND ECONOMIC SIGNIFICANCE OF RETAILING

• Retail Sales:
 Over $4.1 trillion in annual U.S. sales in 2005
• Employment:
 Employs over 24 million people in 2005
 One of the largest sectors for job growth in US
• Social responsibility
• Global player

SOCIAL RESPONSIBILITY
• Corporate social responsibility
 The voluntary actions taken by a company to address the ethical, social,
and environmental impacts of its business operations, in addition to the
concerns of its stakeholders.

OPPORTUNITIES IN RETAILING: MANAGEMENT OPPORTUNITIES

• People with a wide range of skills and interests needed because retailers’
functions include
 Finance
 Purchase
 Accounting
 Management information system (MIS)
 Supply management including warehouse and distribution management
 Design and new product development

OPPORTUNITIES IN RETAILING: ENTREPRENEURIAL OPPORTUNITIES

• Retailing provides opportunities for people who want to start their own business
• Some of the world’s richest people are retailing entrepreneurs
• Examples of retailing entrepreneurs
 Sam Walton (Wal-Mart)
 Jeff Bezos (www.Amazon.com)
 Ingvar Kamprad (IKEA)
 Anita Roddick (the Body Shop)

CAREER OPPORTUNITIES IN RETAILING START YOUR OWN BUSINESS

• List of Retail Entrepreneurs on Forbes 400 Richest Americans
 Walton Family (Wal-Mart)
 Fisher (The Gap)
 Wexner (The Limited)
 Menard (Menard’s)
 Marcus (The Home Depot)
 Kellogg (Kohl’s)
 Schulze (Best Buy)
 Levine (Family Dollar)
 Gold (99Cent Only)

RETAIL STRATEGY
• A retail strategy should identify
 the target market
 the product and service mix
 a long-term comparative advantage
RETAIL STRATEGY
• Need to identify the competition
 Intratype competition
Competition among firms in the same type of business.
 Intertype competition
Competition among firms in different types of businesses but which sell
the same product.
• Identifying customers
 What are the significant demographic and life-style trends
 Who are your target customers

ASPECTS OF TARGET’S STRATEGY

 Growth-oriented objectives
 Appeal to a prime market
 Distinctive company image
 Focus
 Strong customer service
 Multiple points of contact
 Employee relations
 Innovation
 Commitment to technology
 Community involvement
 Constantly monitoring performance

CUSTOMER SERVICE
• Activities undertaken by a retailer in conjunction with the basic goods and
services it sells.
 Store hours
 Parking
 Shopper-friendliness
 Credit acceptance
 Salespeople
A CUSTOMER RESPECT CHECKLIST
 Do we trust our customers?
 Do we stand behind what we sell?
 Is keeping commitments to customers important to our company?
 Do we value customer time?
 Do we communicate with customers respectfully?
 Do we treat all customers with respect?
 Do we thank customers for their business?
 Do we respect employees?

RELATIONSHIP RETAILING
• Seek to establish and maintain long-term bonds with customers, rather
than act as if each sales transaction is a completely new encounter
 Concentrate on the total retail experience
 Monitor satisfaction
 Stay in touch with customers

EFFECTIVE RELATIONSHIP RETAILING

• Use a win-win approach
 It is harder to get new customers than to keep existing ones happy
• Develop a customer database
 Ongoing customer contact is improved with information on people’s
attributes and shopping behavior

MISCONCEPTIONS ABOUT CAREERS IN RETAILING

• College not needed
• Low pay
• Long hours
• Boring
• Dead-end job
• No benefits
• Everyone is part-time
• Unstable environment
• No opportunity for women and minorities
 CHAPTER 2
TYPES OF RETAILERS

GENERAL TRENDS IN RETAILING

• New Types of Retailers
• Increased Concentration
• Globalization
• Growth In Services Retailer
• Demise of Pure Electronic Retailers (Webvan, eToys, etc)
• Growth in Use of Multi-Channel Retailing by Traditional Retailers
• Increase Use of Technology to Reduce Cost; Increase Value Delivered

RETAILER CHARACTERISTICS
• The type of retailer a consumer chooses to use depends on the benefits the
consumer is seeking.

Example
You want to buy and send a sweater to your Aunt in Washington for her birthday,
you may prefer to look online and conveniently have the retailer send the package to
the address. On the other hand you may want to go to a department store like
Gordman’s to be able to see the items and maybe try something on for yourself.

MERCHANDISE OFFERING
• Variety (breadth of merchandise): wide vs. narrow
- The number of merchandise categories
• Assortment (depth of merchandise): deep vs. shallow
- The number of items in a category (SKUs)

SUPERMARKETS
• Conventional supermarket- is a large, self-service retail food store offering
groceries, meat, and produce as well as some non food items. (30,000 SKUs)
• Limited-assortment supermarkets and Extreme-value food retailers only stock
about (2,000 SKUs).
• SKUs- are stock-keeping units

SUPERCENTERS
• Supercenters- are large stores that combine a supermarket with full-line
discount store.
• Walmart operates 2700 stores in the US accounting for 81% of total supercenter
sales.
• Hypermarkets- are very similar to supercenters but are more common outside
the US and focus more on perishables.

WAREHOUSE CLUBS
• Warehouse clubs- are retailers that offer a limited and irregular assortment of
food and general merchandise with little service at low prices for ultimate
consumers and small businesses.
• Most have to types of members, wholesale members who own small business
and individuals who purchase for their own use.

CONVENIENCE STORES
• Convenience stores- provide a limited variety and assortment of merchandise
at a convenient location in 3000 to 5000 square foot stores with speedy
checkouts.
• Over half the items bought are consumed within 30 minutes of purchase.
• Majority of sales come from gas and cigarettes.
GENERAL MERCHANDISE RETAILERS
• The major types of general merchandise retailers are:
1. Department stores
2. Full-line discount stores
3. Specialty stores
4. Home improvement centers
5. Off-price retailers
6. Extreme-value stores.

DEPARTMENT STORES
• Department stores – are retailers that carry a broad variety and deep
assortment, offer customer service and organize their stores into distinct
departments for displaying merchandise.
• They provide soft goods (apparel and bedding) and hard goods (appliances,
furniture, and consumer electronics)

FULL-LINE DISCOUNT & SPECIALTY STORES

• Full-line discount stores- are retailers that offer a broad variety of merchandise,
limited services, and low prices. They offer both private label and national
brands.
• Specialty stores- concentrate on a limited number of complementary
merchandise categories and provide a high level of service. (Victoria’s Secret,
Gamestop)

DRUGSTORES
• Drugstores- are specialty stores that concentrate on health and personal
grooming merchandise. Prescription Pharmaceuticals represent almost 70% of
their sales.
• Large drugstores:
1. Walgreens
2. CVS
3. Rite Aid

CATEGORY SPECIALISTS
• Category specialists- are big-box stores that offer a narrow but deep
assortment of merchandise.
EXTREME-VALUE RETAILERS
• Extreme-value retailers- are small discount stores that offer a limited
merchandise assortment at very low prices.
• Some of the extreme-value stores we have in this area are Family Dollar and
Dollar General.

OFF-PRICE RETAILERS
1. Closeout retailers- offer an inconsistence assortment of brand-name
merchandise at a significant discount off the manufacture’s price.
2. They buy excess inventory, close-outs, and irregulars from other stores at
typically ¼ to 1/5 of the original price.
3. Outlet stores- are off-price retailers owned by manufacturers or retailers.

SERVICE RETAILING
• Service retailers- are firms that primarily sell services rather than merchandise,
and are a large and growing part of the retail industry.
DIFFERENCES BETWEEN SERVICES AND MERCHANDISE RETAILERS
• Intangibility- services are less tangible than products- customers cannot touch
and feel services, so it is difficult for them to evaluate before they buy.
• Simultaneous Production and Consumption- services create and deliver the
service as the customer is consuming it.
• Perishability- Services are perishable. They cannot be saved, stored, or resold.
• Inconsistency- Products made by a machine are very tight in quality, a service
will never be identical because it depends on the person.

TYPES OF OWNERSHIP
• There are three major classification of retail ownership are:
4. Independent, single-store establishments
5. Corporate chains
6. Franchises

INDEPENDENT, SINGLE-STORE ESTABLISHMENTS

• Single-store retailers can tailor their offerings more to their customers’ needs,
and corporate chains can more effectively negotiate lower prices.
• Single-store retailers typically rely on their owners/managers’ capabilities to
make a broad range of necessary retail decisions.

CORPORATE RETAIL CHAINS

• Retail chain- is a company that operates multiple retail units under common
ownership and usually has centralized decision making for defining and
implementing its strategy.
• Examples are:
1. Walmart
2. Target
3. Gap

FRANCHISING
• Franchising- is a contractual agreement between a franchisor and a franchisee
that allows the franchisee to operate a retail outlet using a name and format
developed and supported by the franchisor.
• Makes up 40% of retail sales in the US.
 CHAPTER 3
MULTI-CHANNEL RETAILING

MULTICHANNEL RETAILING
• Retailers that sell merchandise or services through more than one channel.
• Retailers can leverage the unique benefits provided by each to attract and satisfy
more customers.

STORES
• Browsing
• Touching and feeling products
• Personal service
• Cash payment
• Entertainment & Social interaction
• Immediate gratification
• Risk reduction

BROWSING
• Many consumers surf the Internet and look through catalogs for ideas, though
most consumers still prefer browsing in stores.

TOUCHING AND FEELING PRODUCTS

• Opportunity for customers to use all five of their senses – touching, smelling,
tasting, seeing, and hearing.

PERSONAL SERVICE
• Sales associates still have the capability of providing meaningful, personalized
information.

CASH PAYMENT
• Stores are the only channel that accepts cash payment.

ENTERTAINMENT AND SOCIAL EXPERIENCE

• In-store shopping can be a stimulating experience for some people. It provides a
reality in their daily routine and enabling them to interact with friends.

IMMEDIATE GRATIFICATION
• Stores have the advantage of allowing customers to get the merchandise
immediately after they buy it.
RISK REDUCTION
• The store will be there to receive defective or unsuitable merchandise and issue
you a credit for it.

CATALOG CHANNEL
• Provides some benefits to customers that are not available from the store or
Internet channels.
 Convenience
 Safety
 Visual presentation

 CONVENIENCE
• Consumers have the added convenience of not being restricted to a place with
Internet access and a computer;
• They can look through a catalog on the beach or propped up in bed.

 SAFETY
• Security in malls and shopping areas is becoming an important concern for many
shoppers, particularly with the elderly.

 QUALITY OF VISUAL PRESENTATION

• The photographs of merchandise in catalogs, while not as useful as in-store
presentation, are superior to the visual information that can be displayed on a
CRT screen.

INTERNET CHANNEL
• Provides convenience and safety benefits offered by catalogs and other non-
stores formats.
• Has the potential to offer a greater selection of products and more personalized
information about products and services.
 Broad selection
 Detailed problem-solving Information
 Personalization

 BROADER SELECTION
• The vast number of alternatives available to consumers.

 DETAILED PROBLEM-SOLVING INFORMATION

• Provision of information to help customers make better purchase decisions.
• Customers can format the information so they can effectively use it when
evaluating products.

 PERSONALIZATION
• Most significant potential benefit of the internet channel is its ability to
personalized the information for each customer economically.
 Personalized Customer Service
 Personalized Offering
 Personalization in the Future

■ PERSONALIZED CUSTOMER SERVICE

o Enables electronic retailers to automatically send a proactive chat invitation to
customers on the site.
o Offering live, online chats.
 ONLINE CHAT – provides customers with the opportunity to click a
button at anytime and have an instant messaging e-mail or voice
conversation with a customer service representative.
 ■ PERSONALIZED OFFERING
o Provides an opportunity for retailers to personalized their offerings for each of
their customers.
o Recommendation of complimentary merchandise.

■ PERSONALIZATION IN THE FUTURE

o Benefits that will be available to consumers’ shopping via the Internet in the
future.
o Access to more retailers and deeper merchandise assortments.

EVOLUTION TOWARDS MULTI-CHANNEL RETAILING

FOUR REASONS:
1st – Overcoming Limitations of an existing format
2nd – Expanding Market Presence
3rd – Increasing Share of Wallet
4th – Insights into Customer Shopping Behavior

OVERCOMING LIMITATIONS OF AN EXISTING FORMAT

• The amount of merchandise that can be displayed and offered for sale in store is
limited.
• Limitation that store-based retailers face is inconsistent execution.

EXPANDING MARKET PRESENCE

• Adding an electronic channel is particularly attractive to firms with strong brand
names but limited locations and distribution.

INCREASING SHARE OF WALLET

• Electronic and catalog channels drive more purchases from the stores, and the
stores drive more purchases from the Web site.
• Store-based retailers can also leverage their stores to lower the cost of fulfilling
orders and processing retuned merchandised if they use the stores as
“warehouse” for gathering merchandise for delivery customers.

INSIGHTS INTO CUSTOMER SHOPPING BEHAVIOR

• An electronic channel can provide valuable insights into how and why customers
shop and are dissatisfied or satisfied with the experience.
• Offers the opportunity to collect more detailed information about customer
preferences.

SKILLS TO OPERATE AND REALIZE THE BENEFITS OF MULTI-CHANNEL

RETAILING.
1. Developing assortments and managing inventory
2. Managing employees in distant locations
3. Distributing merchandise efficiently from distribution centers to stores
4. Catalogs
5. Web sites
6. Processing orders electronically
7. Efficiently distributing individual orders to homes
8. Operating communications and information systems
ISSUES IN MULTICHANNEL RETAILING
• Integrated Shopping Experience
• Brand Image
• Merchandise Assortments
• Pricing

INTEGRATED SHOPPING EXPERIENCE

• Many retailers are finding it easier to offer integration one step at a time rather
than trying to link everything from the start, which could be financially and
technologically daunting for them and alienate consumers of things don’t go well.

BRAND IMAGE
• Multichannel retailers need to project the same image to their customers across
all channels.
• Customers enter the Web site through an image of the red doors used in its
stores and are greeted by the phrase,
“Always classic, never closed.”

MERCHANDISE ASSORTMENTS
• Customers expect that everything they seen in a retailer’s store will also be
available on its Web site.
• Many multi-channel retailers have tailored the assortments sold on their web site
to include only products their customers are likely to buy over the Internet.

PRICING
• Represents another difficult decision for a multi-channel retailer.
• Retailers need to adjust their pricing strategy because of the competition they
face in different channels.
• Multichannel retailers are beginning to offer new types of pricing, like auctions,
that take advantage of the unique properties of the Internet.
 CHAPTER 4
RETAIL MARKET STRATEGY

WHAT’S RETAIL STRATEGY?

A retail strategy is a statement identifying
1. The retailer’s target market.
2. The format the retailer plans to use to satisfy the target market’s needs.
3. The bases on which the retailer plans to build a sustainable competitive advantage.

Target Market
• The market segment(s) toward which the retailer plans to focus its resources and
retail mix.