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RETAILING

Walton’s .5 & .10

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Definition of Retailing

Retailing includes . . . .

all activities involved in selling, renting, and providing

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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Retailing Creates Value

• Retailing’s 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.

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Which Company Best Represents Which Utilities?

Wells Fargo

Saturn

Levi Strauss

www.levi.com

Toys “ R ” Us

www.toysrus.com

One of the best-run banks in the United States, Wells Fargo is intensifying

it’s 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 bank’s 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 Levi’s 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

_____ _____ _____ _____

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The Largest Retailers (2005 Sales)

Category Retailer(s) Sales ($, in billions)

Department stores Sears (K-Mart) J C Penney

49.124 18.781

Apparel Limited TJX

9.699 16.058

Consumer Electronics Circuit City Best Buy

10.472 27.433

Drug and Discount Wal-Mart Target

315.654 52.620

Home Improvement Home Depot Lowe’s

81.511 43.243

Home Shopping Service Merchandise Fingerhut

3.327 1.912

Specialty Retailers Costco Toys R Us

52.935 11.194

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Global Economic Impact of Retailing

• Four of the 30 largest businesses in the U.S.

are retailers.

• In 1997, Wal-Mart’s $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.

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Sales ($billions)

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

3.8

24.5

16.7

12.9 9.2

6.2

5.9

5.7

4.9

.9

9.6

Retail Sales By Type of Business

0 325 650

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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.

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Form of ownership Independent retailer

Corporate chain

Contractual system

• Retailer-sponsored cooperative

• Wholesaler-sponsored voluntary chain

Franchise

Level of service Self-service

Limited service

Full-service

Merchandise line Depth

• Single line

• Limited line

Breadth

• General merchandise

• Scrambled merchandise

Classifying retail outlets

METHOD OF CLASSIFICATION DESCRIPTION OF RETAIL OUTLET

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The possibilities and costs of franchising

FRANCHISE TYPE OF BUSINESS

TOTAL START-UP COSTS

NUMBER OF FRANCHISES

McDonald’s Fast-food restaurant $385,000-$520,000 19,500

Merry Maids Cleaning Service $27,500-$40,500 700

Jiffy Lube Automobile fluid service $208,000-$229,000 667

Mail Boxes Etc. Postal Services $55,000-$75,000 2,953

Duds ’N Suds Laundry and snack bar $60,000 80

Radio Shack Electronic accessories $67,500 1,934

Barbizon School of Modeling $69,500-$124,000 65

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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 children’s 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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Breadth vs. Depth of Merchandise Lines

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

Depth:

Number of

items within

each product

line

Breadth: Number of different product lines

Shoes Appliances CDs Men’s Clothing

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Differences in Store Concepts

DISCOUNT STORE SUPERCENTER HYPERMARKET

Average size

(in square feet)

Number of employees

Annual Sales

($ millions per store)

Gross margin

Number of items stocked

70,000

200-300

$10-$20

18%-19%

60,000-80,000

150,000

300-350

$20-$50

15%-16%

100,000

230,000

400-600

$75-$100

7%-8%

60,000-70,000

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Forms of Non-store Retailing

Automatic

vending

Direct mail

and

catalogs

Television

home

shopping

On-line

retailing

Tele-

marketing

Direct

selling

High

Low

Acti

ve c

ust

om

er

invo

lvem

en

t

Active retailer involvement Low High

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Retail Positioning Matrix

Kmart

Just for Feet Tiffany

Bloomingdale’s

Broad

Narrow

Value added Low High

Breadth of

product line

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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.

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The Retailing Mix

The retailing mix includes:

1. Goods and services

2. Physical distribution

3. Communications tactics

chosen by a store.

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The Retailing Mix

Consumers

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

Advertising

Window displays

Internal displays

Public relations

S tore layout

Catalogs

Telephone sales

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Types of Retailers Keys to Success

High Value-added/

Broad Line

(Bloomingdales)

Creative merchandising image--

excitement, leader

High price/high margin

Store Ambiance

Low Value-added/

broad line (Kmart)

Economies of scale--volume

Image--”good guys”, conveniences

Low price/low margin

Low or self-service

Efficiency of operations

High Value-added/

narrow line (Tiffany)

Unique of high quality products

Image--exclusive specialty

High price/high margin

Personal service/advice

Expensive presentation

Low Value-added

narrow line

(Just for Feet)

Specialty mass merchandising

Image--value conscious, consistent

Low price, loss leaders

Little or self-service

“Cookie-cutter” stores

Implications of the Retail Positioning Mix

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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

retailer’s 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.

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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.

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Store Location

• Central business district

• regional shopping centers

• community shopping centers

• strip location

• power center

Types of Store Locations

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Passage

of time As time passes,

outlet adds services

As more time passes, outlet

adds still more services

4. New form of outlet

enters retailing

environment with

characteristics of

outlet in Box 1

1. Outlet starts with:

Low prices

Low margins

Low status

3. Outlet now has:

Still higher prices

Still higher margins

Still higher status

2. Outlet now has:

Higher prices

Higher margins

Higher status

The Wheel of Retailing

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The Retail Life Cycle M

ark

et

share o

r p

rofi

t

Early growth

Accelerated development

Maturity Decline

Valu

e-re

tail

sto

res

On

-lin

e re

tail

ers

Sin

gle

-pri

ce s

tore

s

Ware

ho

use

clu

bs

Fast

fo

od

ou

tlet

s

Co

nven

ien

ce s

tore

s

Su

per

mark

ets

Dep

art

men

t st

ore

s

Cata

log R

etail

ers

Mall

s (?

)

Gen

eral

sto

re

Fact

ory

ou

tlet

sto

res

Profit

Market share

Sin

gle

-bra

nd

sto

res

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Future Changes in Retailing

Impact of Technology

Changing Shopping Behavior

Importance of Brands

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All rights reserved. Reproduced with permission.

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