Chapter 2 Types of Retailers Mc GrawHillIrwin Retailing

Chapter 2 Types of Retailers Mc. Graw-Hill/Irwin Retailing Management, 6/e Copyright © 2007 by The Mc. Graw-Hill Companies, Inc. All rights reserved.

2 The World of Retailing Increasing Industry Concentration Globalization Growing Diversity of Formats

3 General Trends in Retailing • • • 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

4 Merchandise Offering • Variety (breadth of merchandise) The number of merchandise categories Jack Star/Photo. Link/Getty Images C Squared Studios/Getty Images Stockbyte/Punchstock Images • Assortment (depth of merchandise) The number of items in a category (SKUs) Royalty-Free/CORBIS

5 Variety and Assortment of Bicycles

6 Types of Retailers Food Retailers Mom and Pop Stores Convenience Stores Supermarkets Supercenters General Merchandise Retailers Department Stores Specialty Stores Discount Stores Category Specialists Off-Price Retailers Warehouse Clubs

7 NAICS Codes for Retailers

8 Food Retailers Primary Shopping Format for Food Sales Growth Rates by Retail Format

9 Globalization of Wal-Mart

10 Characteristics of Food Retailers

11 Limited Assortment Supermarkets Save-A-Lot’s limited assortment format means that stores carry the most frequently purchased grocery items in the most popular size and variety The company carries high quality exclusive brands – many produced by the same manufacturers of leading name brands – and an assortment of nationally branded items. Used by permission of Save-A-Lot This allows Save-A-Lot to offer savings of up to 40% compared to conventional grocery stores – without asking shoppers to sacrifice quality.

12 Conventional Supermarket Survival Pack Emphasize Fresh Perishables Target health conscious and ethnic consumers Provide a better in-store experience Offer more private label brands

13 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

14 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

15 Issues in Food Retailing Competition from Discount Stores Efficient Distribution Lower Costs Lower Prices Changing Consumption Patterns Time Pressure Eating Out More Meal Solutions

16 Types of General Merchandise Retailers • • Department Stores Specialty Stores Category Specialists Home Improvement Centers Discount Stores Drugstores Off-Price retailers Extreme Value Retailers

17 Characteristics of General Merchandise Retailers

18 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

19 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 modestly priced merchandise with less customer service: Example: Macy’s Third Tier: Value oriented caters to more price conscious customer Example: JCPenney, Sears, Kohl’s Rob Melnychuk/Getty Images

20 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

21 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 Mc. Graw-Hill Companies, Inc. /Gary He, photographer

22 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 Mc. Graw-Hill Companies, Inc. /Gary He, photographer Lifestyle Formats – Abercrombie and Fitch and Hot Topics

23 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

24 Category Specialists • Deep and Narrow Assortments Destination Stores • Low Price and Service • Wholesaling to Business Customers and Retailing to Consumers • Incredible Growth Ryan Mc. Vay/Getty Images

Issues in Home Improvement Centers 25 Home Depot and Lowes act as both: Retailer Consumer and Wholesaler Business

26 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 Mc. Vay/Getty Images

27 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 Dollar General Family Dollar 99 Cents Only Store Stockbyte/Punchstock Images

28 Non-store Retail Formats Electronic Retailing Catalog and Direct Mail Direct Selling Television Home Shopping Vending Machines Ryan Mc. Vay/Getty Images Royalty-Free/CORBIS

29 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

30 What are Amazon and e. Bay? • Amazon. com – Merchandise to consumers. Provides website development and fulfillment services to other retailers • e. Bay – Acts as a mall or other shopping center providing a “place” for buyers and sellers to meet Don Farrall/Getty Images

31 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

32 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

33 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

34 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 Mc. Vay/Getty Images

35 Types of Nonstore Retailers

36 Sales by Catalog Retailers

37 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

38 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

39 Examples of Service Retailers Type of 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, Compu. Serve 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

40 Merchandise/Service Continuum

41 Types of Retail Ownership • Independent, Single Store Establishments Wholesaler Owned Cooperatives • Corporate Chains • Franchises (c) Brand X Pictures/Punch. Stock

42 Retailers Using Franchise Business Model

43 Franchising 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

44 Reasons for Franchising Growth Technological advances Profitable utilization of capital resources Attainment of the “American Dream” Demographic expansion Product/service consistency

45 Types of Franchise Systems Territorial Operating Mobile Distributorship Co-ownership Co-management Leasing/Licensing Manufacturing Service

46 Reasons for Franchising Failure Inept management Fraudulent activities Market saturation

47 Franchisor Positions in the Marketing Channel Manufacturer - retailer Manufacturer - wholesaler Wholesaler - retailer Service sponsor - retailer

48 Franchisor Benefits Continuous market Market information Money Royalty fees Sales of products Rental and lease fees License fees Management fees

49 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.

50 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.

51 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 corporateowned outlets, and high royalties, fees, costs on equipment, supplies, merchandise, rental/lease rates and mandatory participation in promotional and support services.

52 Franchising Trends for the New Millenium Sustained growth Enduring plus un-imagined applications International expansion Increasing tensions Greater emphasis on financial returns

53 Which Types of Retailers Will Be the First to Pursue Global Markets? Discount Stores Category Specialists Department Stores Supermarkets Services Retailers

54 Increasing Concentration 53% of sales 85% of sales Drug Stores Walgreens, CVS, Rite-Aid and Eckerds Discount Stores Wal-Mart, Target and Kmart

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? 55