chapter 1 perspectives on retailing

Chapter 1

Perspectives on Retailing

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Learning Objectives

Explain what retailing is and why it is undergoing so much change today.

Describe the five methods used to categorize retailers.

Understand what is involved in a retail career and be able to list the prerequisites necessary for success in retailing.

Explain the different methods for the study and practice of retailing.

LO 1


What is Retailing, and Why is it Undergoing so Much Change Today?

Retailing - Consists of the final activities and steps needed to place merchandise made elsewhere into the hands of the consumer or to provide services to the consumer.

Any firm that sells a product or provides a service to the final consumer is said to be performing the retailing function.

What trends do you see in Retailing? LO 1


What is Retailing, and Why is it Undergoing so Much Change Today?

E-tailingPrice competitionDemographic shiftsStore sizeEco-tailingSocial Marketing 1

LO 1


E-tailing

The great unknown for retail managers will be the ultimate role of the Internet.

Bricks-and-mortar retailers - Operate out of a physical building.

With the growth of the web 2.0, the Internet has become much more interactive and social in nature. This has important implications for retailers.

LO 1


E-tailing

To combat e-tailing, bricks-and-mortar retailers must give their customers more control over the shopping experience.

LO 1


E-tailing

E-tailing has caused a shift in power between retailers and consumers.Traditionally, the retailers’ control over pricing

information provided them the upper hand in most transactions.

The information dissemination capabilities of the Internet are making consumers better informed and thus increasing their power when transacting and negotiating with retailers.

LO 1


E-tailing

Retailers must keep experimenting with various strategies, both in-store and online because the next generation of technology will change the consumers’ expectations of what they demand from their retailers.

LO 1


Top on-line Retailers

Amazon Netflix QVC Apple Cabelas Avon JCP NewEgg

LLBean TigerDirect VictoriasSecret

Which are e-tailers only and which are click and mortar


Price Competition

Sam Walton forever changed the face of retailing by realizing that most of any product’s cost gets added after the item is produced.

Walton made a major commitment to computerizing Wal-Mart as a means to reduce expenses.

Costco, a retailer, seeks to boost store traffic by getting shoppers to come in for a “super, low price” on key products.

LO 1


Demographic Shifts

Significant changes in retailing over the past decade have resulted from changing demographic factors such as:The fluctuating birthrate, the growing importance of

the 70 million Generation Y consumers.The move of Generation X into middle age.The beginning movement of the baby boomer

generation into retirement.The increasing number of immigrants.

LO 1


Demographic Shifts

Successful retailers must:become more service-orientedoffer better value in price and qualitybe more promotion-oriented, andbe better attuned to their customers’ needs.

LO 1


Demographic Shifts

Profit growth must come by either:increasing same-store sales at the expense of the

competition’s market share or by reducing expenses without reducing services to the

point of losing customers.

LO 1


Demographic Shifts

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.

LO 1


Store Size

As stores increase in size the retailer often employs a scrambled merchandising strategy.

Scrambled merchandising - Exists when a retailer handles many different and unrelated items.It is the result of the pressure being placed on many

retailers to increase profits.

LO 1


Store Size

Retailers realized that having supersized stores increased several major costs: RentInventory costs, andLabor costs.

Two retail formats that have recently seen a significant decrease in average store size and a decrease in number of stores are:Department stores and Category killers.

LO 1


Store Size

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

LO 1


Exhibit 1.1 - External Environmental Forces Confronting Retail Firms

LO 1


Categorizing Retailers

Census bureauNumber of outletsMargin versus TurnoverLocationSize

LO 2


Census Bureau

The U.S. Bureau of the Census, for purposes of conducting the Census of Retail Trade, classifies all retailers using three-digit North American Industry Classification System (NAICS) codes.

Shortcoming of using the NAICS codes is that they do not reflect all retail activity.

LO 2


Exhibit 1.2 - The Five Methods Used toCategorize Retailers

LO 2


Number of Outlets

Retailers with several units are a stronger competitive threat because they can:Spread many fixed costs over a larger number of

stores.Achieve economies in purchasing.

Advantages of single-unit retailers:They have harder-working, more motivated

employees.They can focus and tailor their efforts and

merchandise in one trade area.

LO 2


Number of Outlets

Standard stock list - Merchandising method in which all stores in a retail chain stock the same merchandise.

Optional stock list - Merchandising method in which each store in a retail chain is given flexibility to adjust its merchandise mix to local tastes and demands.

LO 2


Number of Outlets

Channel advisor or Channel captain - Institution in the marketing channel who is able to plan for and get other channel institutions to engage in activities they might not otherwise engage in.Examples could be manufacturer, wholesaler, broker,

or retailer.Large store retailers are often able to perform the role

of channel captain.

LO 2


Number of Outlets

Private label branding - Occurs when a retailer develops its own brand name and contracts with a manufacturer to produce the merchandise with the retailer’s brand on it instead of the manufacturer’s name.

Also called store branding.

LO 2


Number of Outlets

The major shortcoming of using the number of outlets scheme for classifying retailers is that it addresses only traditional bricks & mortar retailers.

LO 2


Margins Versus Turnover

Gross margin percentage - Gross margin divided by net sales or what percent of each sales dollar is gross margin.

Gross margin - Net sales minus the cost of goods sold.

Operating expenses - Expenses the retailer incurs in running the business other than the cost of the merchandise.

LO 2



Inventory turnover - The number of times per year, on average, that a retailer sells its inventory.

High-performance retailers - Produce financial results substantially superior to the industry average.

Low-margin/low turnover retailer - Operates on a low gross margin percentage and a low rate of inventory turnover.

LO 2



Low-margin/high turnover retailer - Operates on a low gross margin percentage and a high rate of inventory turnover.

High-margin/low turnover retailer - Operates on a high gross margin percentage and a low rate of inventory turnover.

LO 2



Clicks & mortar retailers - Sell both online and via physical stores.

High-margin/high turnover retailer - Operates on a high gross margin percentage and a high rate of inventory turnover.

LO 2


LowTurnover

HighTurnover

High Margin

Low Margin

Excellent positionto withstand a

competitive attack

Least able towithstand a

competitive attack


LO 2


Location

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

Retailers are reaching out for alternative retail sites, rather than simply renovating the existing stores.

Today, the most significant of the new nontraditional shopping locations could be the one which combines culture with entertainment or shopping.

LO 2


Size

The reason for classifying by size is that the operating performance of retailers tends to vary according to size.

With advances in technology, using classification of size is unclear.

LO 2


A Retailing Career

Career pathCommon questions about a retailing careerPrerequisites for success

LO 3


Exhibit 1.4 - Retailing-Two Career Paths

LO 3


Career Path

Store management - The retailing career path that involves responsibility for:SelectingTrainingEvaluating personnel In-store promotionsDisplaysCustomer serviceBuilding maintenance, and Security.

LO 3


Career Path

Buying - The retailing career path whereby one uses quantitative tools to develop appropriate buying plans for the store’s merchandise lines.

LO 3


Common Questions About a Retailing Career

SalaryCareer progressionGeographic mobilityWomen in retailingSocietal perspective

LO 3


Prerequisites for Success

Hard workAnalytical skillsCreativityDecisivenessFlexibilityInitiative

LeadershipOrganizationRisk takingStress tolerancePerseveranceEnthusiasm

LO 3


The Study and Practice of Retailing

Analytical methodCreative methodA two-pronged approachA proposed orientation

LO 4


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.

LO 4


A Proposed Orientation

It has four major orientations:Environmental - allows the retailers to anticipate and

adapt continuously to external forces in the environment.

Management planning - helps the retailers to adapt systematically to a changing environment.

Profit - all retail decisions will have an effect on the firm’s financial performance.

Decision making - allows the retailers to focus on the need to collect and analyze data to make intelligent retail decisions.

LO 4


Exhibit 1.5 - The Importance of Proactive Planning

LO 4

chapter 1 perspectives on retailing

Documents

cengage learning

accessible website

retailers control

mortar retailers

practice of retailing

retailing function

learning objectivesexplain

etailingto combat etailing