5th Edition

Chapter 2

Types of Retailers

McGraw-Hill/Irwin
Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
 The World of Retailing

Introduction Types of Retailers

to Retailing

Multi-Channel Customer Buying

Retailing Behavior
 Trends in Retailing

Increasing Industry Growing Diversity

Concentration of Formats

Globalization
 New Types of Retailers

• Category Specialists
-PetsMart
-Bed, Bath and Beyond
- Michaels
• CarMax and Auto Nation
• Wal-Mart Supercenters
-Supermarket + Discount Store
• Ebay, Priceline, Travelocity
 Increasing Concentration

53% of sales

85% of sales

Drug Stores Discount Stores

Walgreens, CVS, Rite-Aid and Eckerds Wal-Mart, Target and Kmart
Globalization of Wal-Mart
 Types of Retailers

• Retailers Use Different Retail Mixes

-merchandise: variety (breadth) / assortment
(depth)
-services
-store design, visual merchandising
-location
-pricing
• Infinite Variations
• Survival of the Fitness – Some combination of retail
mixes satisfy the needs of significant segments and
persist over time.
Classification by Type of Merchandise
Sales by Merchandise Category
 Merchandise Offering

• Variety (breadth of merchandise)

- The number of merchandise categories

Assortment (depth of merchandise)

-the number of items in a category (SKUs)
Variety and Assortment of Bicycles
 Types of Retailers

Food Retailers General Merchandise Retailers

Mom and Pop Stores Department Stores

Convenience Stores Specialty Stores

Supermarkets Discount Stores

Supercenters Category Specialists

Off-Price Retailers
Warehouse Clubs
Shopping Patterns by Types of Retail Outlets

Outlet % Shopping Number of Weekly

Weekly Trips Spending

Supermarkets 100 2.4 $ 72.82

General merchandise 68 1.3 32.53
discount stores
Fast-food restaurants 65 1.9 16.32
Drug stores 39 1.2 18.70
Convenience stores 37 2.4 19.72
Wholesale clubs 27 1.7 75.12
Specialty food stores 9 1.0 23.70
Source: “Consumers Are Skeptical Again,” “63rd Annual Report of the Grocery Industry,” Progressive Grocer, April 1996, p.42.
 Food Retailers

Mom and Pops – Supermarkets

-Cars, highways and TV to build brands
-Knowledgeable customers – self service
-Perishable vs. packaged goods

Big Box Retailers

-Warehouse Clubs
-Supercenters
-Hypermarkets

Convenience Stores
Types of Food Retailers
 Issues in Food Retailing

Competition from Discount Stores

Efficient
Distribution Lower Costs Lower Prices

Changing Consumption Patterns

Time Pressure Eating Out More Meal Solutions

Types of General Merchandise Retailers

• Discount Stores
• Specialty Stores
• Category Specialists
• Home Improvement Centers
• Department Stores
• Drugstores
• Off-Price retailers
• Value Retailers
Characteristics of General Merchandise Retailers
 Issues in Discount Store Retailing

• Only Big Three Left – Wal-Mart, Kmart,

Target
• Wal-Mart’s Dominance
• Differentiate Strategy
-Wal-Mart = Low Price and Good value
-Target = More Fashionable Apparel
• Competition from Category Specialists
-Toys-R-Us, Circuit City, Sports Authority
 Issues in Specialty Store Retailing

Mall-Based Apparel Retailers:

Decline in Mall Shopping and Apparel Sales
-Lack of New Fashions
-Less Interest in Fashion
-Increase Price Consciousness
Lifestyle Formats – Banana Republic and Hot Topics
 Category Specialists

Deep and Narrow Assortments – Destination Stores

Low Price and Service
Wholesaling to Business Customers and Retailing to
Consumers
Incredible Growth
Increased Competition with National Expansion and
Consolidation
 Issues in Department Store Retailing

• Competition
-Discount Stores on Price
-Specialty Stores on Service, Depth of Assortment

• Lower Cost by Reducing Services (?)

-Centralized Cash Wraps

• More Sales (?)

-Customers Wait for Sale

• Focus on Apparel and Soft Home

• Develop Private Labels and Exclusive Brands
 Issues in Drug Store Retailing

Consolidation – Walgreens, CVS, Rite-Aid,

Eckerds
Competition from Supermarkets and Discount
Stores – Pharmaceuticals
Evolution to a New Format
-Stand Alone Sites with Drive Thru Windows
-Convenient Store Front End
 Issues in Off-Price Retailing

• Opportunistic Buying
• Hurt By Sales in Department Stores
• Buying First Line Merchandise
 Issues in Value Retailing

Target Lower Income Families

Low Cost Low Prices
-Low Cost Location
-Limited Services

One of the Fastest Growing Retail Segments

 Summary

Many New Types of retailers, Increased

Many New Types of retailers,
Diversity to Meet Diverse Needs
Increased
Diversity to Meet Diverse Needs

Most People Shop at All Types Depending

on Situations – Growth in Cross-Shopping
 Non-store Retail Formats

Electronic Retailing

Catalog and Direct Mail

Direct Selling

Television Home Shopping

Vending Machines
Types of Nonstore Retailers
Sales by Non-store Format
2005
 Issues in Catalog Retailing

• Low Start Up Cost

• Evolution of Multi-Channel Offering
-Electronic Channel, Stores

• Increasing Mail Costs

• Clutter from other Catalogs
 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
 Examples of Service Retailers
Type of Service Service Retail Firms

Airlines American, Delta, British Airways, Singapore Airways

Automobile maint/repair Jiffy Lube, Midas, AAMCO
Automobile rental Hertz, Avis, Budget, Alamo
Banks Citibank, NCNB, Bank of America
Child care centers Kindercare, Gymboree
Credit cards American Express, VISA, Mastercard
Education University of Florida, Babson College
Entertainment parks Disney, Universal Studios, Six Flags
Express package delivery Federal Express, UPS, US Postal Service
Financial services Merrill Lynch, Dean Witter
Fitness Jazzercise, Bally’s, Gold’s Gym
Health Care Humana, HCA
Home maintenance Chemlawn, MiniMaid, Roto-Rooter
 Examples of Service Retailers
Type of Service Service Retail Firms

Hotels and motels Hyatt, Sheraton, Marriott, Days Inn

Income tax preparation H & R Block
Insurance Allstate, State Farm
Internet access/Elec info. American On-Line, CompuServe
Long-distance telephone AT&T, MCI, Sprint
Movie theaters AMC, Loews/Sony, Universal
Real estate Century 21, Coldwell Banker
Restaurants TGI Friday’s, Wendy’s, Pizza Hut
Truck rentals U-Haul, Ryder
Weight loss Weight Watchers, Jenny Craig
Video rental Blockbuster
Vision centers Lenscrafter, Pearle
Merchandise/Service Continuum
 Types of Retail Ownership

• Independent, Single Store Establishments

Consumer Owned Cooperatives
Wholesaler Owned Cooperatives

• Corporate Chains
• Franchises
 Trends in Ownership

Concentration on One Format

Growth in Services Franchising
 Franchising

30 – 40% of US Retail Sales

Franchisee Pays Fixed Fee
Plus % of Sales
Franchisee Implements
Program
Why is This Ownership Format
Efficient?
Reasons for Franchising Growth

Technological advances

Profitable utilization of capital resources

Attainment of the “American Dream”

Demographic expansion

Product/service consistency
Types of Franchise Systems

Territorial
Operating
Mobile
Distributorship
Co-ownership
Co-management
Leasing/Licensing
Manufacturing
Service
Reasons for Franchising Failure

Inept management

Fraudulent activities

Market saturation
Franchisor Positions in the Marketing Channel

Manufacturer - retailer

Manufacturer - wholesaler

Wholesaler - retailer

Service sponsor - retailer

Franchisor Benefits

Continuous market

Market information

Money

Royalty fees
Sales of products

Rental and lease fees

License fees

Management fees
 Franchisee Benefits

Initial Services
Market survey and site selection, facility design
and layout, lease negotiation advice, financing
advice, operating manuals, management training
programs, and employee training.
Continuous Services
Field supervision, merchandising and promotional
materials, management and employee retraining,
quality inspection, national advertising,
centralized purchasing, market data and guidance,
auditing and record keeping, management reports,
and group insurance plans.
Franchisor Advantages/Disadvantages

Advantages
Rapid expansion, highly motivated franchisees
do a good job, additional profits by selling
franchisees products and services.
Disadvantages
Company-owned units may be more profitable,
less control then independent retailers over
advertising, pricing, personnel practices, etc.
Franchisee Advantages/Disadvantages

Advantages
Established/proven product/service, business
and technical assistance, and reduction in risk.
Disadvantages
Loss of control since only semi-independent,
franchisee outlets may compete with corporate-
owned outlets, and high royalties, fees, costs on
equipment, supplies, merchandise, rental/lease
rates and mandatory participation in promotional
and support services.
Franchising Trends for the New Millennium

Sustained growth

Enduring plus un-imagined applications

International expansion

Increasing tensions

Greater emphasis on financial returns

Theories of Retail Institution Change

CYCLICAL THEORIES
Wheel of retailing (price/service)
Accordion Theory (assortment)

EVOLUTIONARY THEORIES
Dialectic process (retailer)
Natural selection (customer)
Wheel of Retailing
 The Dialectic Process
THESIS
Department store
High margin
Low turnover SYNTHESIS
High price Discount department
Full service store
Downtown location
Plush facilities Average margins
Average turnover
Moderate prices
ANTITHESIS Limited services
Discount store Suburban locations
Modest facilities
Low margin
High turnover
Low price
Self-service Source: Reprinted with the permission of
Low rent location Macmillan College Publishing Company from
Retailing, 4th Edition, by Dale M. Lewison.
Spartan facilities Copyright © 1991 by Macmillan
College Publishing Company, Inc.