Introduction to the World of Retailing

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Chapter 1

• Introduction to the World of Retailing

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(No Transcript)
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The World of Retailing
Introduction to Retailing
Types of Retailers
Multi-Channel Retailing
Customer Buying Behavior
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Questions

• What is retailing?
• What do retailers do?
• Why is retailing important in our society?
• What career and entrepreneurial opportunities
  does retailing offer?
• What types of decisions do retail managers make?

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What is Retailing?

• Retailing a set of business activities that
  adds value to the products and services sold to
  consumers for their personal or family use
• A retailer is a business that sells products
  and/or services to consumers for personal or
  family use.

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Examples of Retailers

• Retailers
• Kohls, Macys, Wendys, Amazon.com, Jiffy
  Lube, AMC Theaters, American Eagle Outfitter,
  Avon, J.Crew

• Firms that are retailers and wholesalers - sell
  to other business as well as consumers
• Office Depot, The Home Depot, United
  Airlines, Bank of America, Costco

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Manufacturers Perspective
The Four Ps of Marketing
Retailers are part of the distribution channel
Retailers are part of the distribution channel
Product
Price
Distribution
Promotion
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Distribution Channel
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Typical Supply Chain Network
Customers
Plants
Suppliers
retailers
Distribution Centers
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A Retailers Role in a Supply Chain

• Retailers are the final business within a supply
  chain which links manufacturers to consumers.
• A Supply Chain is a set of firms that make and
  deliver a given set of goods and services to the
  ultimate consumer.

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Manufacturing, Wholesaling and Retailing

• Vertical Integration firm performs more than
  one set of activities in the channel
• Ex retailer invests in wholesaling or
  manufacturing
• Backward Integration retailer performs some
  distribution and manufacturing activities
• Ex JCPenney sells Arizona jeans (Private Label)
• Forward Integration manufacturers undertake
  retailing activities
• Ex Ralph Lauren (New York Jones, Liz Claiborne)
  operates its own stores
• Large retailers engage in both wholesaling and
  retailing
• Ex Wal-Mart, Lowes, Safeway, Brown Shoe Company

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Do Retailers Add Value?

• a box of crackers at a grocery store
• costs 1 to manufacturer
• sells at a price of 2

Example
Retailers add significantly to the prices
consumers face Why not buy directly from the
manufacturer? Does that mean that grocery stores
are very profitable?
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Why Not Get Rid of the Middlemen?
Price to Consumer
Price to Distributor
Price to Retailer
2.00
1.00
1.20
.15
.85
.70
Manufacturer Vendor
Distributor Wholesaler
Retailer
Consumer
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Why Not Get Rid of the Middlemen?

• Better services to customers
• More efficient

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Music Industry Channel
Composer Lyricist
Record Company
Publisher
Music Retailer
Distributor
Artist
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Cost for CD

• Retailer 5.00
• Record Company
• Manufacturing .75
• Distribution 1.50
• Marketing 2.00
• Coop advertising 1.00
• Artist/Repertoire 1.00
• Artist royalty 1.25
• Lyricist .75
• Overhead/Profit 2.00
• Total 15.25

• 4 out of 5 CDs fail to make a profit
• 300,000 cost to prepare a CD for release
• 30,000 recording artists

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How Retailers Add Value

• Provide Assortment
• Buy other products at the same time
• Break Bulk
• Buy it in quantities customers want
• Hold Inventory
• Buy it at a convenient place when you want it
• Offer Services
• See it before you buy get credit layaway

Ryan McVay/Getty Images
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How Retailers Add Value

• The value of the product and service
• increases as the retailer performs functions.

Bicycle can be bought on credit or put on layaway
Bicycle is featured on floor display
Bicycle is offered in convenient locations in
quantities of one
Bicycle is developed in several styles
Bicycle is developed at manufacturer
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Examples How Retailers Add Values

• BagBorrowerSteal.com
• jewelry and bag rental Get (not buy, but borrow)
  exactly what you want
• Home Depot
• DIYer (Do-it-yourselfer) Learn how to do it
  yourself with in-store clinics and online
  workshops

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Social and Economic Significance of Retailing

• Retail Sales
• Over 4.1 trillion in annual U.S. sales in 2005
• Employment
• Employs over 24 million people in 2005
• One of the largest sectors for job growth in US
• Social responsibility
• Global player

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Social responsibility

• Corporate social responsibility
• The voluntary actions taken by a company to
  address the ethical, social, and environmental
  impacts of its business operations, in addition
  to the concerns of its stakeholders
• Examples Edun - a fair-trade fashion brand by
  the U2 lead singer Bono
• Starbucks pays its farmers 42 more than the
  commodity price of Arabica coffee beans
• Target community giving programs (5 of income,
  3 million a week)
• Retail companies give away 1.7 of their profits,
  compared with about 0.9 for companies in other
  industries

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Worlds 20 Largest Retailers in 2005
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Structure of Retailing and Distribution Channels
around the World The United States
CHINA
The United States

• The nature of retailing and distribution channels
  in the U.S. is unique.
• Has the greatest retail density
• Has the greatest concentration of large retail
  firms
• Large enough to operate their own warehouses,
  eliminating the need for wholesaling.
• The combination of large stores and large firms
  result in a very efficient distribution system.

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Comparison of Distribution Channels around the
World
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What have created these differences in
distribution systems?
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Nature of Retail Industry is Changing
To Todays Retailer
Mom and Pop Store
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Retailing is a High Tech Industry

• Selling Merchandise through the Internet
• Using Internet to manage supply chains
• Analyze POS data to tailor assortments to stores
• Computer systems for merchandise planning and
  tracking

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Retailers are a Business Like Manufacturers
Accounting
Finance
Marketing
MIS
Operations
Human Resources
The McGraw-Hill Companies, Inc./Andrew Resek,
photographer
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Opportunities in RetailingManagement
opportunities

• People with a wide range of skills and interests
  needed because retailers functions include
• Finance
• Purchase
• Accounting
• Management information system (MIS)
• Supply management including warehouse and
  distribution management
• Design and new product development
• Financially rewarding
• 5-year salary of buyers 50,000 - 60,000
• 5-year salary of store managers 120,000 -
  160,000

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Opportunities in RetailingEntrepreneurial
opportunities
Wal-Mart Sam Walton

• Retailing provides opportunities for people who
  want to start their own business
• Some of the worlds richest people are retailing
  entrepreneurs
• Examples of retailing entrepreneurs
• Sam Walton (Wal-Mart)
• Jeff Bezos (Amazon.com)
• Ingvar Kamprad (IKEA)
• Anita Roddick (the Body Shop)

IKEA Ingvar Kamprad
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Career Opportunities in RetailingStart Your Own
Business
List of Retail Entrepreneurs on Forbes 400
Richest Americans

• Walton Family (Wal-Mart)
• Fisher (The Gap)
• Wexner (The Limited)
• Menard (Menards)
• Marcus (The Home Depot)
• Kellogg (Kohls)
• Schulze (Best Buy)
• Levine (Family Dollar)
• Gold (99Cent Only)

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Misconceptions About Careers in Retailing

• College not needed
• Low pay
• Long hours
• Boring
• Dead-end job
• No benefits
• Everyone is part-time
• Unstable environment
• No opportunity for women and minorities

The McGraw-Hill Companies, Inc./Andrew Resek,
photographer
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Why You Should Consider Retailing

• Entry level management positions
• Department manager or assistant buyer/planner
• Manage and have PL responsibility on your first
  job
• Starting pay average with great benefits
• Some retailers pay graduate school
• No two days are alike
• Buying and planning for financially analytically
  oriented
• Management for people-people

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Types of Jobs in Retailing
Most entry level jobs are in store
management or buying, but theres -accounting
and finance -real estate -human resource
management -supply chain management -adverti
sing -public affairs -information
systems -loss prevention
-visual merchandising
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Retail Management Decision Process
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Strategic Vs Tactical Decisions

• Doing the Right Thing (direction) vs.
• Doing Things Right (execution)
• Strategic Decisions Are
• Made Infrequently
• Long-term
• Require significant investment
• Not easily reversed
• Location, Organization Design, Information and
  Distribution Systems, Customer Service

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Retail Strategy

• Need to identify the competition
• intratype competition
• (e.g., Dillards vs. JCPenney)
• intertype competition
• (e.g., Dillards vs. Wal-Mart)
• Identifying customers
• What are the significant demographic and
  life-style trends
• Who are your target customers

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Retail Strategy

• A retail strategy should identify
• the target market
• the product and service mix
• a long-term comparative advantage

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JC Penneys Strategic Evolution(1)

• Main Street (small town) private label, soft
  goods (apparel, home furnishings), decentralized
  retailer
• Changes in environment -- increased disposable
  income, growth of suburbs, interstate highway
  program
• Emulate Sears in moving to enclosed suburban
  malls
• Add hard goods (appliances, automotive)
• Diversify drug stores, insurance, specialty
  stores
• Develop catalog channel

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JC Penneys Strategic Evolution(2)

• Focus on department store format and soft goods
  develop electronic retail channel
• Mid-market, mall based department store, between
  Wal-Mart/Target and Macys/Dillards
• Competition from Target, Kohls
• Centralization to reduce cost, increase
  responsiveness - centralized buying, warehouse
  delivery
• Off the mall stores to increase customer
  convenience
• Improving store atmospherics
• Upgrading merchandise offering (e.g., Sephora,
  American Living by Polo Ralph Lauren)

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Wal-Marts Strategic Evolution

• Small Town - Discount Store selling hard goods
  and soft goods
• limited service, efficient distribution
• Enter suburban markets
• Warehouse Clubs (Sams)
• Supercenters
• International Expansion
• Supermarkets, neighborhood markets

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Sears Strategic Evolution

• Large number of merchandise categories --
  appliances, hardware, apparel
• Malls evolved into places for buying soft goods,
  hard goods sold at category killers
• The Softer Side of Sears
• Refocused on value -- Testing carts in stores
• Acquired Lands End
• Acquired by Kmart

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Whole Foods Implementation
Strategy - organic and natural foods supermarket
chainAssortment beyond organic/natural
foods Private labels - Whole Food, 360 Day
Value Love, trust, and employee
empowerment Equality in compensation
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Decision Variables for Retailers
Customer Service
Retail Strategy
Store Design and Display
MerchandiseAssortment
Location
Pricing
Communication Mix
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Wal-Marts Retail Mix
Customer Service
Location
Retail Strategy
MerchandiseAssortment
Store DesignAnd Display
Pricing
Communication Mix
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Wal-Marts Retail Mix
Location Strategy
Free-standing Stores
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Wal-Marts Retail Mix
Assortment Strategy
Customer Service
Location
Large Number of Categories Few Items in Each
Category
Store Design and Display
Communication Mix
Pricing
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Wal-Marts Retail Mix
Pricing Strategy
Low, EDLP
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Wal-Marts Retail Mix
Communication Mix
TV and NewspaperInsert Ads
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Wal-Marts Retail Mix
Store Design and Display
Basic, Special Displays for Products
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Wal-Marts Retail Mix
Customer Service
Limited
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Claires Retail Mix
Customer Service
Location
Retail Strategy
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix
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Claires Retail Mix
Location Strategy
Enclosed malls
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Claires Retail Mix
Assortment Strategy
Customer Service
Location
Jewelry, accessories and cosmetics for
tweens and teens
Store Design and Display
Communication Mix
Pricing
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Claires Retail Mix
Pricing Strategy
Location
Customer Service
Merchandise Assortment
Store Design and Display
Communication Mix
Modest with Sales
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Claires Retail Mix
Customer Service
Location
Communication Mix
Store Design And Display
Merchandise Assortment
Pricing
TV and Magazine Ads
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Claires Retail Mix
Store Design and Display
Customer Service
Location
Bright, fashionable and fun boutique layout
Merchandise Assortments
Pricing
Communication Mix
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Claires Retail Mix
Customer Service
Modest
Location
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix
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Macys Retail Mix
Customer Service
Location
Retail Strategy
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix
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Macys Retail Mix
Location Strategy
Enclosed Malls
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Macys Retail Mix
Assortment Strategy
Customer Service
Location
Many Items in Apparel and Soft Home
Store Design and Display
Communication Mix
Pricing
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Macys Retail Mix
Pricing Strategy
Location
Customer Service
Merchandise Assortment
Store Design and Display
Communication Mix
Moderate with Frequent Sales
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Macys Retail Mix
Customer Service
Location
Communication Mix
Store Design And Display
Merchandise Assortment
Pricing
TV, Newspaper Ads and Special Events
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Macys Retail Mix
Store Design and Display
Customer Service
Location
Racetrack with Displays
Merchandise Assortments
Pricing
Communication Mix
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Macys Retail Mix
Customer Service
Modest
Location
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix
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Targets Retail Mix
Customer Service
Location
Retail Strategy
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix
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Targets Retail Mix
Location Strategy
Free-standing Stores
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Targets Retail Mix
Assortment Strategy
Customer Service
Location
Large Number of Categories Private Labels Few
Items in Each Category
Store Design and Display
Communication Mix
Pricing
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Targets Retail Mix
Pricing Strategy
Location
Customer Service
Merchandise Assortment
Store Design and Display
Communication Mix
Low to Modest
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Targets Retail Mix
Customer Service
Location
Communication Mix
Store Design And Display
Merchandise Assortment
Pricing
TV and Newspaper Insert Ads
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Targets Retail Mix
Store Design and Display
Customer Service
Location
Colorful, wide aisles displays for products with
a grid layout
Merchandise Assortments
Pricing
Communication Mix
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Targets Retail Mix
Customer Service
Limited
Location
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix
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Ethical Situations for a Retail Manager

• Should a retailer sell merchandise that they
  suspect utilized child labor?
• Should it advertise that its prices are the
  lowest in an area even though some items are not?
• Should a buyer accept an expensive gift from a
  vendor?
• Should salespeople use high-pressure sales when
  they know the product is not the best for the
  customers needs?
• Should a retailer give preference to minorities
  when making a promotion decision?
• Should a retailer treat some customers better
  than others?

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Checklist for Making Ethical Decisions
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You are Faced with an Ethical Decision What Can
You Do?

• Ignore your personal values and do what your
  company asks you to do you will probably feel
  dissatisfied with your job .
• Take a stand and tell your employer what you
  think. Work to change the policies.
• Refuse to compromise your principles you could
  lose your job!