Perspectives on Retailing

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• Chapter 1
• Perspectives on Retailing

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Learning Objectives

• Explain what retailing is and why it is
  undergoing so much change today.
• Describe the five methods used to categorize
  retailers.
• Understand what is involved in a retail career
  and be able to list the prerequisites necessary
  for success in retailing.
• Explain the different methods for the study and
  practice of retailing.

LO 1
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What is Retailing, and Why is it Undergoing so
Much Change Today?

• Retailing - Consists of the final activities and
  steps needed to place merchandise made elsewhere
  into the hands of the consumer or to provide
  services to the consumer.
• Any firm that sells a product or provides a
  service to the final consumer is said to be
  performing the retailing function.

LO 1
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What is Retailing, and Why is it Undergoing so
Much Change Today?

• E-tailing
• Price competition
• Demographic shifts
• Store size

LO 1
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E-tailing

• The great unknown for retail managers will be the
  ultimate role of the Internet.
• Bricks-and-mortar retailers - Operate out of a
  physical building.
• With the growth of the web 2.0, the Internet has
  become much more interactive and social in
  nature. This has important implications for
  retailers.

LO 1
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E-tailing

• To combat e-tailing, bricks-and-mortar retailers
  must give their customers more control over the
  shopping experience.

LO 1
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E-tailing

• E-tailing has caused a shift in power between
  retailers and consumers.
• Traditionally, the retailers control over
  pricing information provided them the upper hand
  in most transactions.
• The information dissemination capabilities of the
  Internet are making consumers better informed and
  thus increasing their power when transacting and
  negotiating with retailers.

LO 1
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E-tailing

• Retailers must keep experimenting with various
  strategies, both in-store and online because the
  next generation of technology will change the
  consumers expectations of what they demand from
  their retailers.

LO 1
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Price Competition

• Sam Walton forever changed the face of retailing
  by realizing that most of any products cost gets
  added after the item is produced.
• Walton made a major commitment to computerizing
  Wal-Mart as a means to reduce expenses.
• Costco, a retailer, seeks to boost store traffic
  by getting shoppers to come in for a super, low
  price on key products.

LO 1
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Demographic Shifts

• Significant changes in retailing over the past
  decade have resulted from changing demographic
  factors such as
• The fluctuating birthrate, the growing importance
  of the 70 million Generation Y consumers.
• The move of Generation X into middle age.
• The beginning movement of the baby boomer
  generation into retirement.
• The increasing number of immigrants.

LO 1
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Demographic Shifts

• Successful retailers must
• become more service-oriented
• offer better value in price and quality
• be more promotion-oriented, and
• be better attuned to their customers needs.

LO 1
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Demographic Shifts

• Profit growth must come by either
• increasing same-store sales at the expense of the
  competitions market share or
• by reducing expenses without reducing services to
  the point of losing customers.

LO 1
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Demographic Shifts

• Same-store sales - Compares an individual stores
  sales to its sales for the same month in the
  previous year.
• Market share - Retailers total sales divided by
  total market sales.

LO 1
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Store Size

• As stores increase in size the retailer often
  employs a scrambled merchandising strategy.
• Scrambled merchandising - Exists when a retailer
  handles many different and unrelated items.
• It is the result of the pressure being placed on
  many retailers to increase profits.

LO 1
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Store Size

• Retailers realized that having supersized stores
  increased several major costs
• Rent
• Inventory costs, and
• Labor costs.
• Two retail formats that have recently seen a
  significant decrease in average store size and a
  decrease in number of stores are
• Department stores and
• Category killers.

LO 1
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Store Size

• Category killer - Retailer that carries such a
  large amount of merchandise in a single category
  at such good prices that it makes it impossible
  for the customers to walk out without purchasing
  what they need, thus killing the competition.

LO 1
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Exhibit 1.1 - External Environmental Forces
Confronting Retail Firms
LO 1
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Categorizing Retailers

• Census bureau
• Number of outlets
• Margin versus Turnover
• Location
• Size

LO 2
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Census Bureau

• The U.S. Bureau of the Census, for purposes of
  conducting the Census of Retail Trade, classifies
  all retailers using three-digit North American
  Industry Classification System (NAICS) codes.
• Shortcoming of using the NAICS codes is that they
  do not reflect all retail activity.

LO 2
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Exhibit 1.2 - The Five Methods Used toCategorize
Retailers
LO 2
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Number of Outlets

• Retailers with several units are a stronger
  competitive threat because they can
• Spread many fixed costs over a larger number of
  stores.
• Achieve economies in purchasing.
• Advantages of single-unit retailers
• They have harder-working, more motivated
  employees.
• They can focus and tailor their efforts and
  merchandise in one trade area.

LO 2
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Number of Outlets

• Standard stock list - Merchandising method in
  which all stores in a retail chain stock the same
  merchandise.
• Optimal stock list - Merchandising method in
  which each store in a retail chain is given
  flexibility to adjust its merchandise mix to
  local tastes and demands.

LO 2
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Number of Outlets

• Channel advisor or Channel captain - Institution
  in the marketing channel who is able to plan for
  and get other channel institutions to engage in
  activities they might not otherwise engage in.
• Examples could be manufacturer, wholesaler,
  broker, or retailer.
• Large store retailers are often able to perform
  the role of channel captain.

LO 2
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Number of Outlets

• Private label branding - Occurs when a retailer
  develops its own brand name and contracts with a
  manufacturer to produce the merchandise with the
  retailers brand on it instead of the
  manufacturers name.
• Also called store branding.

LO 2
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Number of Outlets

• The major shortcoming of using the number of
  outlets scheme for classifying retailers is that
  it addresses only traditional bricks mortar
  retailers.

LO 2
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Margins Versus Turnover

• Gross margin percentage - Gross margin divided by
  net sales or what percent of each sales dollar is
  gross margin.
• Gross margin - Net sales minus the cost of goods
  sold.
• Operating expenses - Expenses the retailer incurs
  in running the business other than the cost of
  the merchandise.

LO 2
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Margins Versus Turnover

• Inventory turnover - The number of times per
  year, on average, that a retailer sells its
  inventory.
• High-performance retailers - Produce financial
  results substantially superior to the industry
  average.
• Low-margin/low turnover retailer - Operates on a
  low gross margin percentage and a low rate of
  inventory turnover.

LO 2
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Margins Versus Turnover

• Low-margin/high turnover retailer - Operates on a
  low gross margin percentage and a high rate of
  inventory turnover.
• High-margin/low turnover retailer - Operates on a
  high gross margin percentage and a low rate of
  inventory turnover.

LO 2
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Margins Versus Turnover

• Clicks mortar retailers - Sell both online and
  via physical stores.
• High-margin/high turnover retailer - Operates on
  a high gross margin percentage and a high rate of
  inventory turnover.

LO 2
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Margins Versus Turnover
High Margin
Excellent position to withstand a competitive
attack
Low Turnover
High Turnover
Least able to withstand a competitive attack
Low Margin
LO 2
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Location

• Retailers are now aware that opportunities exist
  in new non-traditional retail areas.
• Retailers are reaching out for alternative retail
  sites, rather than simply renovating the existing
  stores.
• Today, the most significant of the new
  nontraditional shopping locations could be the
  one which combines culture with entertainment or
  shopping.

LO 2
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Size

• The reason for classifying by size is that the
  operating performance of retailers tends to vary
  according to size.
• With advances in technology, using
  classification of size is unclear.

LO 2
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A Retailing Career

• Career path
• Common questions about a retailing career
• Prerequisites for success

LO 3
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Exhibit 1.4 - Retailing-Two Career Paths
LO 3
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Career Path

• Store management - The retailing career path that
  involves responsibility for
• Selecting
• Training
• Evaluating personnel
• In-store promotions
• Displays
• Customer service
• Building maintenance, and
• Security.

LO 3
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Career Path

• Buying - The retailing career path whereby one
  uses quantitative tools to develop appropriate
  buying plans for the stores merchandise lines.

LO 3
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Common Questions About a Retailing Career

• Salary
• Career progression
• Geographic mobility
• Women in retailing
• Societal perspective

LO 3
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Prerequisites for Success

• Hard work
• Analytical skills
• Creativity
• Decisiveness
• Flexibility
• Initiative

• Leadership
• Organization
• Risk taking
• Stress tolerance
• Perseverance
• Enthusiasm

LO 3
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The Study and Practice of Retailing

• Analytical method
• Creative method
• A two-pronged approach
• A proposed orientation

LO 4
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The Study and Practice of Retailing

• Analytical Method
• Manager is finder and
• investigator of facts.

• Creative Method
• Manager is conceptual
• and very imaginative.

• Two-Pronged Method
• Manager who employs both
• approaches.

LO 4
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A Proposed Orientation

• It has four major orientations
• Environmental - allows the retailers to
  anticipate and adapt continuously to external
  forces in the environment.
• Management planning - helps the retailers to
  adapt systematically to a changing environment.
• Profit - all retail decisions will have an effect
  on the firms financial performance.
• Decision making - allows the retailers to focus
  on the need to collect and analyze data to make
  intelligent retail decisions.

LO 4
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Exhibit 1.5 - The Importance of Proactive
Planning
LO 4