McGraw-Hill/IrwinRetailing Management, 6/e

Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2

Types of Retailers

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The World of Retailing

Growing Diversity of Formats

Increasing Industry Concentration

Globalization

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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

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Merchandise Offering

• Variety (breadth of merchandise)

The number of merchandise categories

• Assortment (depth of merchandise)

The number of items in a category (SKUs)

Stockbyte/Punchstock ImagesJack Star/PhotoLink/Getty Images C Squared Studios/Getty Images

Royalty-Free/CORBIS Royalty-Free/CORBIS Royalty-Free/CORBISRoyalty-Free/CORBIS

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Variety and Assortment of Bicycles

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Food Retailers

Mom and Pop Stores

Convenience Stores

Supermarkets

Supercenters

General Merchandise RetailersDepartment Stores

Specialty Stores

Discount Stores

Category Specialists

Off-Price Retailers

Warehouse Clubs

Types of Retailers

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Food Retailers

Primary Shopping Format for Food Sales Growth Rates by Retail Format

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Globalization of Wal-Mart

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Characteristics of Food Retailers

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Limited Assortment Supermarkets

Save-A-Lot’s limited assortment formatmeans that stores carry the mostfrequently purchased grocery items inthe most popular size and variety

The company carries high qualityexclusive brands – many produced by thesame manufacturers of leading namebrands – and an assortment of nationallybranded items.

This allows Save-A-Lot to offer savings of up to 40% compared to conventional grocery stores – without asking shoppers to sacrifice quality.

Used by permission of Save-A-Lot

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Conventional Supermarket Survival Pack

Emphasize Fresh Perishables

Target health conscious and ethnic consumers

Provide a better in-store experience

Offer more private label brands

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Food Retailers 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

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Convenience Stores Fight Competition

• Tailors associates to local market

• Stores are more convenient to shop

• Offers fresh food

• Fast, casual restaurants

• Financial services available

• Opening smaller stores closer to consumers – like airports

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Issues in Food Retailing

Competition from Discount Stores

Changing Consumption Patterns

Efficient

Distribution Lower Costs Lower Prices

Time Pressure Eating Out More Meal Solutions

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Types of General Merchandise Retailers

• Department Stores

• Specialty Stores

• Category Specialists

• Home Improvement Centers

• Discount Stores

• Drugstores

• Off-Price retailers

• Extreme Value Retailers

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Characteristics of General Merchandise Retailers

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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

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Three Tiers of Department Stores

First Tier: upscale, high fashion chains with exclusive designer merchandise and excellent customer service.Example: Nordstrom, Neiman Marcus, Bloomingdales, Saks

Second Tier: Retailers sell more modestlypriced merchandise with less customer service: Example: Macy’s Third Tier: Value oriented caters to more price conscious customerExample: JCPenney, Sears, Kohl’s

Rob Melnychuk/Getty Images

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What To Do With an Eroding Market

To deal with an eroding market Department stores are:

•attempting to increase the amount of exclusive merchandise they sell

•undertaking marketing campaigns to develop strong images for their stores and brands

•building better relationships with their key customers

Royalty-Free/CORBIS

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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

McGraw-Hill Companies, Inc./Gary He,

photographer

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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 – Abercrombie and Fitch and Hot Topics

McGraw-Hill Companies, Inc./Gary He, photographer

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Issues in Drug Store Retailing• Consolidation – Walgreens, CVS,

Rite-Aid• Competition from Supermarkets,

discount Stores and mail-in orders• Evolution to a New Format• -Stand Alone Sites with Drive Thru

Windows• -offering more frequent purchase

food items• Improved systems provide

personalized service in the pharmacy

Keith Brofsky/Getty Images

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Category Specialists

• Deep and Narrow Assortments Destination Stores

• Low Price and Service

• Wholesaling to Business Customers and Retailing to Consumers

• Incredible Growth

Ryan McVay/Getty Images

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Issues in Home Improvement Centers

Home Depot and Lowes act as both:

Retailer and Wholesaler

Consumer Business

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Home Improvement Centers

Displays are warehoused

Customer Service: How to select and how to use merchandise

Competition focuses on price, effort to differentiate and services provided

Ryan McVay/Getty Images

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Issues in Extreme Value Retailing

• Focuses on Lower Income Consumers• Names mostly imply good value not $1 price

points• Low Cost Location• Limited Services• One of the Fastest Growing Retail Segments

Dollar Tree Family Dollar

Dollar General 99 Cents Only Store

Stockbyte/Punchstock Images

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Non-store Retail Formats

Electronic Retailing

Catalog and Direct Mail

Direct Selling

Television Home Shopping

Vending Machines

Royalty-Free/CORBISRyan McVay/Getty Images

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Electronic Retailing

• History of frenzied investments and false predictions of retail dominance

• Primarily used by traditional retailers to compliment store and catalog offerings

• Exclusive e-tailers target small and dispersed niche markets

Randy Allbritton/Getty Images

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What are Amazon and eBay?

• Amazon.com – Merchandise to consumers. Provides website development and fulfillment services to other retailers

• eBay – Acts as a mall or other shopping center providing a “place” for buyers and sellers to meet

Don Farrall/Getty Images

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Issues in Catalog Retailing

• Low Start Up Cost• Evolution of Multi-Channel Offering• Hard to compete with large well established firms• Increasing Mail Costs• Clutter from other Catalogs• General merchandise catalogs like JC Penney• Specialty Catalogs like JC Whitney, Victoria

Secret

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Issues in Direct Selling

• Providing information and demonstrations is costly

• Party plan system: merchandise is demonstrated in a party atmosphere

• Multi-level network: Master distributors sell to distributors who sell merchandise

• Pyramid schemes: Firm sells to other distributors and little if any merchandise goes to end users

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Issues in Television Home Shopping

• Consumers watch cable stations, infomercials or direct response ads

• Few consumers watch regularly• Most purchases made by small proportion of

viewers• Customers can’t examine merchandise• Customers must wait for merchandise to come

on• Sells mostly jewelry, apparel, cosmetics,

kitchenware, exercise equipment

Royalty-Free/CORBIS

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Issues in Vending Machine Retailing• Sales growth has been

declining due to higher prices and healthier eating habits

• New technology may help sales growth

• Vending machines are beginning to accept credit

• Trend of placing machines in captive consumer locations

Ryan McVay/Getty Images

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Types of Nonstore Retailers

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Sales by Catalog Retailers

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Services vs. Merchandise Retailers

Intangibility -Problems in Evaluating Service Quality -Performance of Service ProviderSimultaneous Production and Delivery -Importance of Service Provider

Perishability -No Inventory, Must Fill CapacityInconsistency of the Offering -Importance of HR Management

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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

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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

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, Hollywood Video

Vision centers Lenscrafter, Pearle

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Merchandise/Service Continuum

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Types of Retail Ownership

• Independent, Single Store Establishments

Wholesaler Owned Cooperatives

• Corporate Chains

• Franchises

(c) Brand X Pictures/PunchStock

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Retailers Using Franchise Business Model

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Franchising

30 – 40% of US Retail Sales

Franchisee Pays Fixed Fee Plus % of Sales

Franchisee Implements Program

Why is This Ownership Format Efficient?

The McGraw-Hill Companies, Inc./Jill Braaten, photographer

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Reasons for Franchising Failure

Inept management

Fraudulent activities

Market saturation

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Franchising Trends for the New Millenium

Sustained growth

Enduring plus un-imagined applications

International expansion

Increasing tensions

Greater emphasis on financial returns

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Which Types of Retailers Will Be the First to Pursue Global Markets?

Discount Stores

Category Specialists

Department Stores

Supermarkets

Services Retailers

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Increasing Concentration

Drug Stores

Walgreens, CVS, Rite-Aid and Eckerds

53% of sales

85% of sales

Discount Stores

Wal-Mart, Target and Kmart

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Why Is the Retail Industry Becoming More Concentrated?

Traditionally retailers have been local businesses.

• Why are bigger firms emerging?

• Why are least concentrated sectors food retailers and services retailers?