CHAPTER ELEVEN RETAILING Prepared by Jack Gifford Miami

THE ROLE OF RETAILING -Retailing - all the activities directly related to the sale of goods and services to the ultimate consumer for personal, non-business use has enhanced the quality of our daily lives. -Retailing affects all of us directly in our daily lives. -Retailing includes obvious businesses like department stores and supermarkets, but also hotels, movie theatres, restaurants, and professional sports games. © 2001 South-Western College Publishing 2

THE RETAILING INDUSTRY -Employs over 20, 000 people in the United States, representing 1 out of 5 workers -Retailers in the US ring up over $2. 2 trillion in sales each year, representing over 25% of our GDP -Although retailing has many small and large retailers, the largest 10% do over one-half of the total retail dollars and employ 40% of all retail workers. © 2001 South-Western College Publishing 3

CLASSIFICATION OF RETAIL OPERATIONS -Retail ownership can be classified according to its… -Ownership -Level of Service -Product assortment -Price -Margin -Turnover -In-store vs Out-of-store We can best understand the meaningful differences and similarities between retailers by discussing in four pairs. © 2001 South-Western College Publishing 4

ASSORTMENT STRATEGY #1 High Margin Gucci Specialty Store Convenience Stores Low Turnover High Turnover

ASSORTMENT STRATEGY #2 Deep Old Navy Specialty Store May Company Department Stores Narrow Wide

SERVICE / PRICE STRATEGY High Price Gucci Specialty Store Convenience May Company Department Stores

CLASSIFICATION BY OWNERSHIP AND PHYSICAL PRESENCE -Ownership -Independent -Chain -Franchise -Physical Presence -In-store -Non-store presence -Door-to-door -Telemarketing -Internet marketing -Direct-response -Direct-mail and catalog -Catalog A careful examination of any form of retailing against these eight dimensions provides a fairly clear picture of the nature of that organization and how the marketing mix will be best applied to support their corporate objectives. © 2001 South-Western College Publishing 8

TRADITIONAL CLASSIFICATIONS -Department stores -Moderately high margin and medium high turnover -High service and moderate price -Deep and wide assortment -Mostly large chains and in-store presence -Current market strategies -Trying to gain back market share from specialty stores -Reduce prices and costs through consolidation and acquisitions © 2001 South-Western College Publishing 9

TRADITIONAL CLASSIFICATIONS -Specialty Stores -Almost always narrow and deep -Moderately high margin and moderately high turnover -High service and low to high price -Independent, chain or franchise -In-store or non-store -Trends -High growth around niche markets -Distinctive atmospherics © 2001 South-Western College Publishing 10

TRADITIONAL CLASSIFICATIONS -Supermarkets -Small margins, high turnover, scrambled merchandising, limited service -Increase in specialty foods, ethnic foods and pre-prepared meals -Movement toward superstores that combine food and non-food products -Increasing emphasis on loyalty programs © 2001 South-Western College Publishing 11

TRADITIONAL CLASSIFICATIONS -Drugstores -Expanding depth and breadth of merchandise -Increasing use of information technology to better serve regular customers -Aging marketplace should provide strong demand in the coming years -Electronic and direct mail pharmacy services are challenging in-store pharmacies © 2001 South-Western College Publishing 12

TRADITIONAL CLASSIFICATIONS -Discount stores, superstores, extremevalue stores and hypermarkets -Stores such as Wal-Mart, Kmart, and Target are doing extremely well because of tight cost control, economies of scale, high turnover, every-day-low-prices (EDLP), and huge merchandise depth and breadth. They are also expanding overseas and experimenting with various superstore and smaller supermarkets. © 2001 South-Western College Publishing 13

TRADITIONAL CLASSIFICATIONS -Discount specialty stores and category killers -Represent a blending of a specialty store and a deep discount store to offer a very large selection of a narrow category of merchandise and low prices (Toys R Us, Circuit City, Pets. Mart, Office Depot) -Low margin, high turnover operations, with tight cost controls © 2001 South-Western College Publishing 14

TRADITIONAL CLASSIFICATIONS -Other major classifications of retailers include… -Warehouse clubs -Factory outlets -Non-store retailing -Automatic vending -Direct retailing (door-to-door, office-to-office, home sale parties) -Direct-response marketing (direct mail, catalog's, telemarketing, shop-at-home networks (TV and telephone) © 2001 South-Western College Publishing 15

TRADITIONAL CLASSIFICATIONS -Other major classifications of retailers include (continued)… -Non-store retailing(continued) -Online retailing -Although currently small, growing at over 100% per year -Has been very successful in selling specialty products, including music, books, computers, and software © 2001 South-Western College Publishing 16

TRADITIONAL CLASSIFICATIONS -Franchising -In the United states, there are over 500, 000 franchisers with combined sales approaching $1 trillion, or one-third of all retailing. -Product and trade name franchising (Coca-Cola) and business format franchising (Burger King) are the two basic forms of franchising -Franchising has aggressively expanded internationally, with 27 Mc. Donald franchises in Moscow, The Russian Federation, alone. © 2001 South-Western College Publishing 17

RETAIL STRATEGIC MARKETING -Retailers must develop marketing strategies based upon overall goals and strategic plans. -Key tasks in strategic retailing are. . . -Defining and selecting a target market -The marketing mix, plus 2 © 2001 South-Western College Publishing -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation 18

RETAIL STRATEGIC MARKETING -Defining and selecting a target market -The marketing mix, plus 2 -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation • Successful retailing has always been based upon knowing the customer • Target markets are often defined by demographics, geographies, and psychographics • Defining a viable target market for the present and the future is essential before deciding on a retail marketing mix © 2001 South-Western College Publishing 19

RETAIL STRATEGIC MARKETING -Defining and selecting a target market -The marketing mix, plus 2 -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation • Retailers must have the right product at the right time in the right amounts. Any “wrongs” will spell disaster in today’s competitive marketplace. • The appropriate depth and breadth must be carried. • The appropriate mix of national brands, designer brands, and private label is essential. © 2001 South-Western College Publishing 20

RETAIL STRATEGIC MARKETING -Defining and selecting a target market -The marketing mix, plus 2 -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation • Customers have become very sophisticated in terms of price comparisons, and shop between competing forms of retailers for many products. • A strong distinctive competitive advantage today is to be the low cost, and subsequently the low price, outlet of a major product category. © 2001 South-Western College Publishing 21

RETAIL STRATEGIC MARKETING -Defining and selecting a target market -The marketing mix, plus 2 -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation • Includes advertising, public relations, and sales promotion • Retailers are experimenting with new media and changing mixes of promotions to most effectively reach the customer. • Increased use of direct mail, catalog programs, and frequent shopper plans © 2001 South-Western College Publishing 22

RETAIL STRATEGIC MARKETING -Defining and selecting a target market -The marketing mix, plus 2 -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation • The key to successful instore retailing is location, and location! • Store may be free standing or part of central business district or shopping center • Shopping centers come in various sizes, from the small strip cluster to enormous super-regional centers containing over 850 stores. © 2001 South-Western College Publishing 23

RETAIL STRATEGIC MARKETING -Defining and selecting a target market -The marketing mix, plus 2 -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation • All retailers, including self service retailers, are emphasizing the importance of knowledgeable and friendly sales personnel. • Personnel shortages, low wages, and a low image have made it difficult for retailers to attract and retain qualified sales personnel. • This difficult situation will become an increasing problem in the coming years. © 2001 South-Western College Publishing 24

RETAIL STRATEGIC MARKETING -Defining and selecting a target market -The marketing mix, plus 2 -Product (assortment) -Pricing -Promotion -Place (distribution) -Personnel -Presentation • Presentation relates to the visual impact of a store on customers and its ability to generate high sales per square foot. • Retailers must think of their stores as a stage, with sounds, lights, smells, props (fixtures), colors, and layout all supporting the atmospherics and theme of the store and the message it is try to convey. © 2001 South-Western College Publishing 25

GLOBAL RETAILING - The world is becoming a single marketplace, with US retailers opening new stores outside the US, foreign retailers entering the US market, and the combining of retail entities and formats across national boundaries to the advantage of all parties. - With the creation of NAFTA, the EC, and Mercosur, tariff and trade barriers are disappearing. © 2001 South-Western College Publishing 26

TRENDS IN RETAILING INCLUDE. . . - Entertainment - Convenience and efficiency - Share of customer - The communications and electronic revolution - Consolidation and integration - Strategic alliances - Internationalization -. . and much, much more! © 2001 South-Western College Publishing 27