CHAPTER 2 1 Types of Retailers CHAPTER 02

CHAPTER 2 1 Types of Retailers CHAPTER 02 Retailing Management 8 e Mc. Graw-Hill/Irwin 2 Copyright 2012 by The Mc. Graw-Hill Companies, Inc. All rights reserved. © The Mc. Graw-Hill Companies, All rights © reserved.

The World of Retailing CHAPTER 2 1 Introduction to the World of Retailing Types of Retailers Multichannel Retailing Customer Buying Behavior 2 -2

Questions CHAPTER 2 1 • What trends shape today’s retailers? • What are the different types of retailers? • How do retailers differ in terms of how they meet the needs of their customers? • How do service retailers differ from merchandise retailers? • What are the types of ownership for retail firms? 2 -3

General Trends in Retailing CHAPTER 2 1 • New Types of Retailers • Increased Concentration • Globalization • Growth In Services Retailer • Demise of Pure Electronic Retailers (Webvan, e. Toys, etc) • Growth in Use of Multi-Channel Retailing by Traditional Retailers • Increase Use of Technology to Reduce Cost; Increase Value Delivered 2 -4

NAICS Codes for Retailers CHAPTER 2 1 2 -5

Types of Retailers CHAPTER 2 1 • Retailers Use Different Retail Mixes -merchandise: variety (breadth) / assortment (depth) -services -store design, visual merchandising -location -pricing • Infinite Variations • Some combination of retail mixes satisfy the needs of significant segments and persist over time. 2 -6

Bag Borrow or Steal CHAPTER 2 1 2 -7

Retailer Characteristics CHAPTER 2 1 • Variety (breadth) • Assortment (depth) • Services Offered • Prices and the cost of offering breath and depth of merchandise and services 2 -8

Merchandise Offering CHAPTER 2 1 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) 2 -9

Services Offered CHAPTER 2 1 • Retailers differ in the services they offer customers • EMS offers assistance in selecting the appropriate kayak and repairing them VS • http: //www. outdoor play. com and • Wal-Mart: doesn’t provide any services 2 -10

Illustration of Variety and Assortment CHAPTER 2 1 Lady Foot Locker Sports Authority Active SKUs: 44 N/A Classics SKUs: 44 N/A Converse SKUs: 25 N/A Elite Running SKUs: 22 N/A Fitness N/A SKUs: 1 Running SKUs: 44 SKUs: 39 N/A SKUs: 7 Training SKUs: 22 SKUs: 2 Walking SKUs: 11 SKUs: 12 Trail Running 2 -11

Prices and the cost of offering breath and depth of merchandise and services CHAPTER 2 1 • Stocking a deep and broad assortment (like EMS) is costly for retailers. Many SKUs Because the retailer must have backup stock for each SKU in addition to holding the inventory Investment Cost 2 -12

Types of Merchandise Retailers Food Retailers Mom and Pop Stores Convenience Stores Supermarkets Supercenters CHAPTER 2 1 General Merchandise Retailers Department Stores Specialty Stores Discount Stores Category Specialists Off-Price Retailers Warehouse Clubs Value Retailers 2 -13

Sales and growth rate for retail sectors CHAPTER 2 1 2 -14

Food Retailers CHAPTER 2 1 • Channel preference for food shopping channel where grocery purchasers do most of their food shopping • Supermarkets • Supercenters • Warehouse Clubs • Convenience Stores 2 -15

Characteristics of Food Retailers CHAPTER 2 1 2 -16

Supermarkets CHAPTER 2 1 • Conventional supermarkets • 30, 000 SKU • Limited assortment supermarkets (extreme value food retailers) • 2000 SKU • Offer one or two brands and sizes • Designed to maximize efficiency and reduce costs • Offer merchandise at 40 -60% lower prices than conventional supermarkets 2 -17

ALDI: German’s Wal-Mart CHAPTER 2 1 ALDI provides quality merchandise at low prices by reducing its assortment in order to control store operating expenses 2 -18

ALDI’s Strategy CHAPTER 2 1 § 8, 500 worldwide, including 1000 stores in 26 US states § 90 percent of population in Germany shop at Aldi Cheap. . Only two brands of toilet paper and one brand of pickles § STRATEGY: Stores sell less products ALDI exclusive label High quality of products at cheaper prices § HOW? Strong control over quality and price Simplify shipping and handling Reduce labor costs by keeping limited store staff, etc. 2 -19

Trends in Supermarket Retailing CHAPTER 2 1 • Competition from Discount Stores Efficient Distribution Lower Costs Lower Prices • Changing Consumption Patterns Time Pressure Eating Out More Meal Solutions 2 -20

Conventional Supermarket Survival Pack CHAPTER 2 1 • Emphasize Fresh Perishables • Wegmans Chef-crafted meals on the go at Eat. Zi’s • Target health conscious and ethnic consumers • Offer more private label brands • Provide a better in-store experience 2 -21

Supercenters and Warehouse Clubs CHAPTER 2 1 Supercenters (Hypermarkets) Warehouse Clubs • The fastest growing retail category • Large stores (185, 000 square feet) that combine a supermarket with a full-line discount store • One-stop shopping experience • Offer a limited and irregular assortment of food and general merchandise with little service at low prices • Use low-locations, inexpensive store design, little customer service • Low inventory holding costs by carrying a limited assortment of fast selling items 2 -22

Convenience Store CHAPTER 2 1 • Tailors assortments to local market • Makes more convenient to shop • Offers fresh, healthy food • Fast, casual restaurants • Financial services available • Opening smaller stores closer to consumers (like airports) 2 -23

Characteristics of General Merchandise Retailers CHAPTER 2 1 2 -24

Issues in Department Store Retailing CHAPTER 2 1 • 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 2 -25

Three Tiers of Department Stores CHAPTER 2 1 • First Tier: Upscale, high fashion chains with exclusive designer merchandise and excellent customer service • Nordstrom, Neiman Marcus, Saks • Second Tier: Retailers sell more modestly priced merchandise with less customer service • Macy’s • Third Tier: Value oriented caters to more price conscious customer • JCPenney, Sears, Kohl’s Rob Melnychuk/Getty Images 2 -26

Department Stores: What To Do With an Eroding Market CHAPTER 2 1 • 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 2 -27

Issues in Full-line Discount Store Retailing CHAPTER 2 1 • Only Big Left • Wal-Mart, Target • Wal-Mart’s Dominance • Differentiate Strategy • Wal-Mart = Low Price and Good value • Target = More Fashionable Apparel Mc. Graw-Hill Companies, Inc. Gary He, photographer • Competition from Category Specialists • Toys-R-Us, Best Buy, Sports Authority 2 -28

Issues in Specialty Store Retailing CHAPTER 2 1 • Mall-Based Apparel Retailers • Decline in Mall Shopping and Apparel Sales • Lack of New Fashions • Less Interest in Fashion • Increased Price Consciousness • Lifestyle Formats • Abercrombie and Fitch • Victoria’s Secrets • Manufacturers opening their own stores Mc. Graw-Hill Companies, Inc. /Andrew Resek, Photographer 2 -29

Specialty Store Retailers CHAPTER 2 1 Mc. Graw-Hill Companies, Inc. /Andrew Resek, Photographer 2 -30

Issues in Drug Store Retailing CHAPTER 2 1 • Consolidation • Walgreens, CVS, Rite-Aid • Competition • 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 2 -31

Category Specialists • Deep and Narrow Assortments • Destination Stores • Category killers • Low Price and Service • Wholesaling to Business Customers and Retailing to Consumers • Incredible Growth CHAPTER 2 1 Bass Pro Shops 2 -32

Category Specialists CHAPTER 2 1 Sephora, France’s leading perfume/ cosmetic chain LVMH’s division 2 -33

Issues in Extreme Value Retailing CHAPTER 2 1 • 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 2 -34

Off-Price Retailers CHAPTER 2 1 • Close-out retailers • Offer an inconsistent assortment of brand name merchandise at low prices • TJX Companies (which operates T. J. Maxx, Marshalls, Winners, Home. Goods, TKMaxx, AJWright, and Home. Sense), • Ross Stores, • Burlington Coat Factory, • Big Lots. • http: //www. Overstock. com and http: //www. Bluefly. com 2 -35

Services Retailing CHAPTER 2 1 • 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 2 -36

Examples of Service Retailers Type of 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, Mini. Maid, Roto-Rooter CHAPTER 2 1 2 -37

Merchandise/Service Continuum CHAPTER 2 1 2 -38

Types of Retail Ownership CHAPTER 2 1 • Independent, Single Store Establishments • Wholesale-sponsored voluntary group • Corporate Retail Chains • Franchises (c) Brand X Pictures/Punch. Stock 2 -39

Retailers Using Franchise Business Model CHAPTER 2 1 2 -40

Franchising CHAPTER 2 1 • 30 – 40% of US Retail Sales • Franchisee Pays Fixed Fee Plus % of Sales • Franchisee Implements Program • Why is this Ownership Format Efficient? The Mc. Graw-Hill Companies, Inc. /Jill Braaten, photographer 2 -41

Reasons for Franchising Growth CHAPTER 2 1 Technological advances Profitable utilization of capital resources Attainment of the “American Dream” Demographic expansion Product/service consistency 2 -42

Reasons for Franchising Failure CHAPTER 2 1 Inept management Fraudulent activities Market saturation 2 -43

Franchisor Positions in the Marketing Channel CHAPTER 2 1 Manufacturer - retailer Manufacturer - wholesaler Wholesaler - retailer Service sponsor - retailer 2 -44

Franchisor Benefits CHAPTER 2 1 Continuous market Market information Money Royalty fees Sales of products Rental and lease fees License fees Management fees 2 -45

Franchisee Benefits CHAPTER 2 1 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. 2 -46

Franchisor Advantages/Disadvantages CHAPTER 2 1 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. 2 -47

Franchisee Advantages/Disadvantages CHAPTER 2 1 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. 2 -48

Franchising Trends for the New Millennium CHAPTER 2 1 Sustained growth Enduring plus un-imagined applications International expansion Increasing tensions Greater emphasis on financial returns 2 -49

Keywords CHAPTER 2 1 • assortment The number of SKUs within a merchandise category. Also called depth of merchandise. • breadth of merchandise The number of different merchandise categories within a store or department. • category killer A discount retailer that offers a narrow but deep assortment of merchandise in a category and thus dominates the category from the customers’ perspective. Also called a category specialist. • category specialist A discount retailer that offers a narrow but deep assortment of merchandise in a category and thus dominates the category from the customers’ perspective. Also called a category killer. • convenience store A store that provides a limited variety and assortment of merchandise at a convenient location in a 2, 000 - to 3, 000 -square-foot store with speedy checkout. • conventional supermarket A self-service food store that offers groceries, meat, and produce with limited sales of nonfood items, such as health and beauty aids and general merchandise. • department store A retailer that carries a wide variety and deep assortment, offers considerable customer services, and is organized into separate departments for displaying merchandise. 2 -50

Keywords CHAPTER 2 1 • depth of merchandise The number of SKUs within a merchandise category. Also called depth of merchandise. • discount store A general merchandise retailer that offers a wide variety of merchandise, limited service, and low prices. • franchising 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. • full-line discount store Retailers that offer a broad variety of merchandise, limited service, and low prices. • hypermarket Large (100, 000– 300, 000 square feet) combination food (60– 70 percent) and general merchandise (30– 40 percent) retailer. • North American Industry Classification System (NAICS) Classification of retail firms into a hierarchical set of six-digit codes based on the types of products and services they produce and sell. • off-price retailer A retailer that offers an inconsistent assortment of brand-name, fashion-oriented soft goods at low prices. • specialty store A type of store concentrating on a limited number of complementary merchandise categories and providing a high level of service. 2 -51

Keywords CHAPTER 2 1 • stock-keeping unit (SKU) The smallest unit available for keeping inventory control. In soft goods merchandise, an SKU usually means a size, color, and style. • supercenter Large store (150, 000 to 220, 000 square feet) combining a discount store with a supermarket. • supermarket A conventional supermarket is a large, self-service retail food store offering groceries, meat, and produce, as well as some nonfood items, such as health and beauty aids and general merchandise. • value retailers Small, full-line discount stores that offer a limited merchandise assortment at very low prices. • variety The number of different merchandise categories within a store or department. • warehouse club A retailer that offers a limited assortment of food and general merchandise with little service and low prices to ultimate consumers and small businesses. • wholesale-sponsored voluntary cooperative group An organization operated by a wholesaler offering a merchandising program to small, independent retailers on a voluntary basis. 2 -52