CHAPTER EIGHTEEN RETAILING Waltons 5 10 IrwinMc GrawHill

CHAPTER EIGHTEEN RETAILING Walton’s. 5 &. 10 Irwin/Mc. Graw-Hill MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: • Identify retailers in terms of the utilities they provide. • Explain the alternative ways to classify retail outlets. • Understand the many methods of non-store retailing. • Classify retailers in terms of the retail positioning matrix. • Develop retailing mix strategies over the life cycle of a retail store. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -AA Lowest Prices on Earth!! • Buy. com is an online retail business that sells consumer products at or below cost. The company’s goal is to become the name all buyers associate with low price. • How does Buy. com make up the deficit? By selling advertising space on its Web site. Presently, the company is growing at a rate that will make it the fastest growing company in U. S. history. • Can a business survive with a strategy based on only having the lowest price? MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -BB Definition of Retailing includes. . 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -CC 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -1 Which Company Best Represents Which Utilities? 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. Wells Fargo 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. Levi Strauss www. levi. com Toys “ R ” Us www. toysrus. com 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 _____ MARKETING, 6/e BERKOWITZ _____ KERIN HARTLEY _____ RUDELIUS _____ Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -A The Largest Retailers Category Retailer(s) Department stores Apparel Consumer Electronics Drug and Discount Home Improvement Home Shopping Specialty Retailers MARKETING, 6/e Sears J C Penney Limited TJX Circuit City Best Buy Wal-Mart Kmart Home Depot Lowe’s Service Merchandise Fingerhut Costco Toys R Us BERKOWITZ KERIN HARTLEY RUDELIUS Sales ($, in billions) 41. 322 30. 678 9. 347 7. 949 8. 871 8. 358 139. 208 33. 674 30. 219 12. 245 3. 327 1. 912 24. 270 11. 200 Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -DD Global Economic Impact of Retailing • • Four of the 25 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 JCPenny together employ more than 1. 6 million people. Wal-Mart has 603 stores outside the U. S. , including joint ventures in China and Korea. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -2 Retail Sales By Type of Business Automotive dealers . 9 Food stores 3. 8 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 9. 6 24. 5 4. 9 5. 7 5. 9 6. 2 16. 7 9. 2 12. 9 Liquor stores Other 0 MARKETING, 6/e 325 Sales ($billions) KERIN HARTLEY BERKOWITZ 650 RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -EE Concept Check 1. When Levi Strauss makes jeans cut to a customer’s exact preferences and measurements, what utility is provided? 2. Two measures of the importance of retailing in the global economy are ____ and ____. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -FF 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -3 Classifying retail outlets METHOD OF CLASSIFICATION DESCRIPTION OF RETAIL OUTLET 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 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -4 The possibilities and costs of franchising FRANCHISE TYPE OF BUSINESS Mc. Donald’s Fast-food restaurant $385, 000 -$520, 000 Merry Maids Cleaning Service $27, 500 -$40, 500 Jiffy Lube Automobile fluid service $208, 000 -$229, 000 Mail Boxes Etc. Postal Services Duds ’N Suds Laundry and snack bar $60, 000 Radio Shack Electronic accessories $67, 500 Barbizon School of Modeling $69, 500 -$124, 000 MARKETING, 6/e BERKOWITZ KERIN TOTAL START -UP COSTS HARTLEY $55, 000 -$75, 000 RUDELIUS NUMBER OF FRANCHISES 19, 500 700 667 2, 953 80 1, 934 65 Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -GG 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -5 Breadth vs. Depth of Merchandise Lines Breadth: Number of different product lines Shoes Depth: Number of items within each product line Appliances Nike running shoes Florsheim dress shoes Top Sider boat shoes Adidas tennis shoes MARKETING, 6/e BERKOWITZ CDs Amana refrigerator Sony TV sets JVC videocassette recorders General Electric dishwashers Sharp microwave ovens KERIN HARTLEY Men’s Clothing Classical Rock Jazz Country Western RUDELIUS Suits Ties Jackets Overcoats Socks Shirts Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -6 Differences in Store Concepts DISCOUNT STORE SUPERCENTER HYPERMARKET Average size (in square feet) 70, 000 150, 000 230, 000 Number of employees 200 -300 300 -350 400 -600 Annual Sales ($ millions per store) $10 -$20 $20 -$50 $75 -$100 Gross margin 18%-19% 15%-16% 7%-8% Number of items stocked 60, 000 -80, 000 100, 000 60, 000 -70, 000 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -HH Concept Check 1. 2. 3. Centralized decision-making and purchasing are an advantage of ____ ownership. What are some examples of new forms of self-service retailers? Would a shop for big men’s clothes carrying pants in sizes 40 to 60 have a broad or deep product line? MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -7 Forms of Non-store Retailing Active customer involvement High Direct selling Telemarketing On-line retailing Direct mail and catalogs Television home shopping Automatic vending Low MARKETING, 6/e Active retailer involvement BERKOWITZ KERIN HARTLEY RUDELIUS High Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -II Automatic Vending • Nonstore 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -JJ 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -KK 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -LL 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -MM 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -NN 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -OO Concept Check 1. 2. 3. Successful catalog retailers often send ____ catalogs to ____ markets identified in their databases. How are retailers increasing consumer interest and involvement in online retailing? Where are direct-selling retail sales growing? Why? MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -PP 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -8 Retail Positioning Matrix Broad Kmart Bloomingdale’s Breadth of product line Just for Feet Tiffany Narrow Low MARKETING, 6/e Value added BERKOWITZ KERIN HARTLEY RUDELIUS High Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -QQ 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -RR The Retailing Mix The retailing mix includes: 1. Goods and services 2. Physical distribution 3. Communications tactics chosen by a store. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -9 The Retailing Mix Store location Distribution centers Warehousing Transportation Handling goods Packing Personal selling Consumers Advertising Window displays Internal displays Public relations Store layout Catalogs Telephone sales MARKETING, 6/e BERKOWITZ KERIN HARTLEY Variety and assortment Sales assistance Customer services Pricing Credit Guarantees and exchanges Alterations and adjustments Store image and atmosphere Parking Delivery RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -F Implications of the Retail Positioning Mix Types of Retailers High Value-added/ Broad Line (Bloomingdales) Low Value-added/ broad line (Kmart) Keys to Success Creative merchandising image-excitement, leader High price/high margin Store Ambiance 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 MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -SSa 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -SSb 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. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -TT Store Location Types of Store Locations • Central business district • regional shopping centers • community shopping centers • strip location • power center MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -UU Concept Check 1. What are the two dimensions of the retail positioning matrix? 2. How does original markup differ from maintained markup? 3. A huge shopping strip with multiple anchor stores is a ____ center. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -10 The Wheel of Retailing As more time passes, outlet adds still more services 2. Outlet now has: Higher prices Higher margins Higher status Passage of time As time passes, outlet adds 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 MARKETING, 6/e 3. Outlet now has: Still higher prices Still higher margins Still higher status BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

Early growth MARKETING, 6/e BERKOWITZ KERIN Accelerated development HARTLEY Maturity RUDELIUS General store Catalog Retailers Market share Malls (? ) Department stores Supermarkets Fast food outlets Convenience stores Warehouse clubs Factory outlet stores Single-price stores Single-brand stores On-line retailers Value-retail stores Market share or profit PP 18 -11 The Retail Life Cycle Profit Decline Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -VV Future Changes in Retailing Impact of Technology Changing Shopping Behavior Importance of Brands MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000

PP 18 -WW Concept Check 1. According to the wheel of retailing, when a new retail form appears, how would you characterize it’s image? 2. Market share is usually fought out before the ____ stage of the retail life cycle. 3. What is a smart card? MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS Irwin/Mc. Graw-Hill © The Mc. Graw-Hill Companies, Inc. , 2000