INTRODUCTION TO RETAILING

Definition, Evolution of retail markets

Distinction between retailers and wholesalers

Growing importance of the retail industry-economic significance and opportunities in retailing Characteristics and functions of retailing

Types of Retailers

Retailing
Retailing

is the set of business activities that adds value to the products and services sold to consumers from for their personal or family use often people think of retailing only as the sale of products in stores But retailing also involves the sale of services: overnight lodging in a motel, a doctors exam, a haircut, a videotape rental, or a home- delivered pizza

Retailers Role in a Distribution Channel

A retailer is a business that sells products or services, or both, to

consumers for their personal or family use Retailers attempt to satisfy consumer needs by having the right merchandise , at the right price, at the right place, when the consumer wants it Retailers also provide markets for producers to sell the their merchandise Retailers are the final business in a distribution channel that links manufacturers to consumers A distribution channel is a set of firms that facilitate the movement of products from the point of production to the point of sale to the ultimate consumer

Functions of Retailers
1.Providing an assortment of products and services

2.Breaking bulk
3.Holding inventory 4.Providing services

Providing Assortments
Supermarkets typically carry 20, 000 to 30,000 different items made by

a over 500 customers Offering an assortment enables their customers to choose from a wide selection of brands, designs, sizes, colors, and prices in one location

Manufacturers specialize in producing specific types of products

For example, Maggi makes noodles, Cadburys makes chocolates, Kellogs makes breakfast cereals, and Amul makes dairy products If each of these manufacturers had its own stores that only sold its own products, consumers would have to go to many different stores to buy groceries to prepare a single meal

Breaking Bulk
To reduce transportation costs, manufacturers and wholesalers typically ship cases of frozen dinners or cartons to retailers Retailers then offer the products in smaller quantities tailored to individual consumers and households consumption patterns.This is called breaking bulk Breaking bulk is important to both manufacturers and consumers It is cost effective for manufacturers to package and ship merchandise in larger, rather than smaller quantities It is also easier for consumers to purchase merchandise in smaller, more manageable quantities

Holding Inventory
A major function of retailers is to keep inventory that is already broken into user- friendly sizes so that products will be available when consumers want them Thus, consumers can keep a small inventory of products at home because they know the retailers will have the products available when they need more By maintaining an inventory, retailers provide a benefit to consumers- they reduce the consumers cost of storing products This is particularly important to consumers with limited storage space and for purchasing perishable merchandise like meat and produce

Providing Services
Retailers provide services that make it easier for customers to buy and use products They offer credit so consumers can have a product now and pay for it later They display products so consumers can see and test them before buying Some retailers have salespeople on hand to answer questions and provide additional information about products Multichannel retailers offer the flexibility of buying anytime, day or night Customers can choose whether they want to pick merchandise up at a store or have it shipped to their home

Top Global Retailers

1. Wal-Mart- US 2. Carrefour- France 3. Kroger- US 4. Home Depot- US 5. Metro- Germany 6. Ahold- Netherlands 7. Kmart- US 8. Albertsons- US 9. Sears- US 10.Target (Dayton Hudson)- US 11.Safeway- US 12.JC Penney- US 13. Tesco- UK 14. Costco- US 15. Rewe- Germany

Economic Significance of Retailing

Retail Sales Retailing affects every facet of life Just think of how many contacts you have with retailers when you eat meals, furnish your apartment, have your car fixed, and buy clothing for a party or job interview. US retail sales in 2001 were $ 3 trillion

Economic Significance of Retailing

Employment Retailing is one of the largest industries in terms of employment It was projected that by 2010, there will be 26 million people employed in retailing in US alone- approximately 17 per cent of the US workforce

Opportunities in Retailing
Management Opportunities To cope with a highly competitive and challenging environment, retailers are hiring and promoting people with a wide range of skills and interests Retailers employ people with expertise and interest in finance, accounting, human resource management, logistics, computer systems as well as marketing Retail managers are often given considerable responsibility early in their careers Retail management is also financially rewarding After completing a management trainee program, managers can double their starting salary in three to five years if they perform well

Opportunities in Retailing
Entrepreneurial

Opportunities

Retailing also provides opportunities for people wishing to start their own business Some of the worlds riches people are retailing entrepreneurs Some are household names because their names appear over the stores door; others you may not recognize

Retailing Entrepreneurs- Sam Walton (Wal-Mart)

Retailing Entrepreneurs- Jeffrey Bezos (Amazon. com)

Retailing Entrepreneurs- Luciano Benetton (United Colors of Benetton)

Retailing Entrepreneurs- Giorgio Armani (Armani)

Trends in the Retail Industry

1. Growing Diversity of Retail Formats

2. Increasing Industry Concentration

3. Globalization

4. Maturation of Domestic Markets

5. Skills and Systems

6. Trade Barriers

Growing Diversity of Retail Formats

Over the past 20 years, many new retail formats have been developed

Consumers can now purchase the same merchandise from a wider variety of retailers
The initial category specialists in toys, consumer electronics, and home improvement supplies have been joined by a host of new specialists including MARS (musical instruments) (now defunct chain of music stores) , Bed Bath & Beyond (home furnishings), and PETs MART (pet supplies)

Growing Diversity of Retail Formats

Wal-Mart is closing some of its traditional discount stores to open supercenters- large stores (1,50,000 to 200, 000 square feet) combining a discount store with a supermarket CarMax competes with automobile dealers selling used cars using traditional retailing methods

The Internet has spawned a new set of retailers offering consumers the opportunity to buy merchandise and services at fixed prices (www.amazon.com), participate in auctions (www.ebay.com) , or submit take- it- or- leave- it bids(www.priceline.com)

Increasing Industry Concentration

While the number of different retail formats has grown, the number of competitors within each format is decreasing A few national retailers dominate most formats For example, Wal-Mart, Kmart, and Target account for over 85 per cent of the sales in full- line discount stores, and Walgreens, CVS, Rite- Aid, and Eckerd (JC Penney), represent 53 percent of the drug house sales In the United States, there are now only two major category specialists left in consumer electronics (Circuit City and Best Buy), three dominant warehouse clubs (Sams Club [Wal-Mart], Costco, and BJs Wholesale Club), and three in office supplies(Office Depot, Staples and OfficeMax) The dominance of the supermarket industry by strong regional firms like Publix (Florida) and HEB (Texas) is being challenged by national retailers like Wal-Mart, Kroger, Ahold USA. Albertsons, and Safeway

Globalization
Historically, retailing has been a local business Stores were owned and operated by people living in the community and patronized by local residents Today, however, some retailing concepts that are successful in their country of origin have successfully developed a global presence For example, McDonalds and KFC appeal to hungry people everywhere

Similarly Swedens IKEA furniture stores are popular with younger, well- educated adults of US who are furnishing their first homes and apartments

Maturation of Domestic Markets

Most large retailers have saturated their domestic markets
For example, in the United States, many retail failures are attributed to having too many stores in a market selling the same category of merchandise Growth- oriented retailers therefore often see greater opportunities in other countries

Skills and Systems

Todays retailers are better prepared to effectively manage stores in nondomestic markets Their expertise in managing information and distribution systems is easily transferable to international markets Global sourcing and sophisticated information and distribution systems make global expansion easier to do

Trade Barriers
Finally, the relaxation of trade barriers makes global expansion easier The WTO, NAFTA, ASEAN, and the EU have taken significant steps to lower the barriers to international trade

Retailer Characteristics
1. Price- Cost Trade Off 2. Type of Merchandise 3. Variety and Assortment 4. Customer Services 5. Cost of Offering Breadth and Depth of Merchandise and Service

Price- Cost Trade- Off

As you study about the different types of retailers, notice how patterns among retail mix elements arise

For example, department stores appeal to consumers looking for fashionable apparel and home furnishings
Typically, department stores have higher prices because they have higher costs due to stocking a lot of fashionable merchandise, discounting merchandise when errors are made in forecasting consumer tastes, providing some personal sales service, and having convenient but expensive mall locations On the other hand, discount stores appeal to customers who are looking for lower prices and are less interested in services and a wide range of merchandise sizes and colors
Continued

Price- Cost Trade- Off

This difference between the retail mix of department and discount stores illustrates the trade- off retailers make between the price and assortment of merchandise they sell and the services they offer to the customers Offering more sizes, colors, and brands; making the store atmosphere more attractive and entertaining; and increasing the staff of knowledgeable sales associates raises the retailers costs To make a profit and provide these additional benefits to their customers, department stores have to increase the prices of their merchandise to cover the additional costs

Type of Merchandise
The US Bureau of the Census uses a classification scheme to collect data on business activity in the United States As part of this overall classification scheme, it classifies all retail firms into a hierarchical set of six- digit North American Industry Classification (NAICS) codes NAICS has replaced the US Standard Industrial Classification (SIC) system that has been in effect since the 1930s Developed jointly by the United States, Canada, and Mexico, NAICS provides comparable statistics about business activity in North America The classification scheme for food retailers is illustrated in

Continued

Type of Merchandise
The first two digits, 44 and 45, denote the retail sector (Restaurants have been moved to sector 72- accommodation and food services)

The third digit denotes the sub- sector (This is the first column in Exhibit 2.1)
The fourth digit represents the industry group Thus, under subsector 448, clothing and clothing accessory stores, we have 4481 (clothing stores) and 4482 (shoe stores) The fifth digit provides a further breakdown- 44811 is mens clothing stores, where as 44812 is womens clothing stores The last digit, not illustrated in Exhibit 2-1 and not always used, may differ between the three countries Continued

Type of Merchandise
Exhibit 2-2 shows the annual sales of the larger categories as reported by the Census of Retail Trade A retailers principal competitors may be other retailers with the same NAICS code There are some exceptions though

For example, clothings primary designation is subsector 448

But clothing can be purchased in sporting goods stores (45111), department stores (4521), warehouse clubs and superstores (45291), and electronic shopping and mail- order houses (4541)
Continued

Type of Merchandise
Consider the stores those sell sports clothing, they satisfy different consumer needs and thus appeal to different market segments

Sporting goods stores have a large variety of sports clothing at relatively high prices and knowledgeable sales assistance
Department stores are equally expensive and service- oriented, but they dont offer the same broad assortment of sporting goods Warehouse clubs may have a narrow assortment of relatively inexpensive sports clothing Finally, a wide variety of sports clothing is available at an Internet shop like Fogdog.com; where as NFL.com specializes in National Football League clothing and other football paraphernalia Thus, the degree to which retailers compete against each other is largely based on the similarity of their merchandise

Variety and Assortment

The degree to which retailers compete against each other isnt simply based on the similarity of their merchandise The variety and assortment of the merchandise they offer and the services they provide must also be considered Variety is the number of merchandise categories a retailer offers

Assortment is the number of different items in a merchandise category

Each different item of merchandise is called a SKU (Stock Keeping Unit) Continued

Variety and Assortment

For example, a 32- ounce box of Tide laundry detergent and a white, long- sleeved, button- down- collar Tommy Hilfiger shirt, size 16- 33, are both SKUs Warehouse club stores, discount stores, and toy stores all sell toys However, warehouse clubs and discount stores sell many other categories of merchandise in addition to toys They have greater variety but the maximum assortment is present with the toy shops Variety is often referred to as the breadth of merchandise carried by a retailer; assortment is referred to as the depth of merchandise

Customer Services
Retailers also differ in the services they offer customers For example, the bicycle shop offers assistance in selecting the appropriate bicycle, adjusting bicycles to fit the individual, and repairing bicycles Toys R Us and Wal-Mart dont provide any of these services Customers expect retailers to provide some services : accepting personal cheques, providing parking, and being open long and convenient hours Some retailers charge customers for other services, such as home delivery and gift wrapping Retailers that cater to service- oriented consumers offer customers most of these services at no charge

Cost of Offering Breadth and Depth of Merchandise and Services

Stocking a deep assortment like the Toys R Us offering in bicycles is appealing to customers but costly for retailers When a retailer offers customers many SKUs, inventory investment increases because the retailer must have backup stock for each SKU Similarly, services attract customers to the retailer, but they re also costly More salespeople are needed to provide information and assist customers, to alter merchandise to meet customers needs, and to demonstrate merchandise Child care facilities, rest rooms, dressing rooms, and check rooms take up valuable store space that could be used to stock and display merchandise Offering delayed billing, credit, and installment payments requires a financial investment that could be used to buy more merchandise A critical retail decision involves the trade- off between costs and benefits of maintaining additional inventory or providing additional services

Types of Retailers
Food Retailers General Merchandise Retailers

Non- Store Retail Formats

Services Retailing

Food Retailers
People purchased food primarily at conventional supermarkets Today, however, discount stores and warehouse clubs are significantly changing consumers food purchasing patterns because they too sell food AC Nielsen Home- scan Panel data indicate that 54 per cent of US households have done food shopping at one of the big three discounters- Wal-Mart, Kmart, or Target Additionally, 20 per cent say they are making fewer trips to the grocery At the same time, traditional food retailers carry many nonfood items, plus many have pharmacies, photo processing centers, banks and cafes Surprisingly, the worlds largest food retailer is Wal-Mart, with supermarket- type sales of $77 billion in 2000 Yet supermarket- type products still generate only 40 per cent of its revenue

Food Retailers
a) Conventional Supermarkets: A Conventional Supermarket is a selfservice food store offering groceries, meat, and produce with limited sales of non- food items, such as health and beauty aids and general merchandise Superstores are larger conventional supermarkets (20, 000 to 50, 000 square feet) with expanded service deli, bakery, sea food and non- food sections In the US, about half of the conventional supermarkets are very promotional

One day each week, they advertise that weeks sale items in local papers
These promotion- oriented supermarkets also offer their own coupons and may agree to reimburse customers double or triple the face value of manufacturer coupons This is called a high- low pricing strategy

Food Retailers
The other half of conventional supermarkets use very few promotions and sell almost all merchandise at the same price every day This is called an everyday low pricing (EDLP) policy

Typically, everyday prices in these supermarkets are lower than regular prices in promotional supermarkets

Food Retailers
b.

Big- Box Food Retailers: Over the past 25 years, supermarkets have increased in size and have begun to sell a broader variety of merchandise In 1979, conventional supermarkets accounted for 85 per cent of supermarket sales By 1998, only 41 per cent of US supermarket sales were in conventional supermarkets due to the growth of big- box food retailing formats: supercenters, hypermarkets, and warehouse clubs

Food Retailers
Supercenters: are 150, 000- to- 220, 000- square- foot stores that offer a wide variety of food (30- 40 per cent) and non- food merchandise (60- 70 per cent) They are the fastest growing retail category
Supercenters stock between 100, 000 and 150, 000 individual items (SKUs) The largest supercenter chains in the United States are Wal-Mart Supercenters

By offering broad assortments of grocery and general merchandise under one roof, supercenters provide a one- stop shopping experience Customers will typically drive farther to shop at these stores than to visit conventional supermarkets (which offer a smaller selection)

Food Retailers
Hyper Markets: are also large (100, 000 to 300, 000 square feet) combination food (60- 70 per cent) and general merchandise (30- 40 per cent) retailers Hypermarkets typically stock less than supercenters, between 40, 000 and 60, 000 items ranging from groceries, hardware, and sports equipment, to furniture and appliances, to computers and electronics Hypermarkets were created in France after World War II
By building large stores on the outskirts of metropolitan areas, French retailers could attract customers and not violate strict land- use laws They have spread throughout Europe and are popular in some South American countries such as Argentina and Brazil

Food Retailers
Supercenters Vs. Hyper Markets Both hypermarkets and supercenters are large, carry grocery and general merchandise categories, are self- service, and are located in warehouse- type structures with large parking facilities Hypermarkets are often larger, but they carry fewer items than a supercenter The merchandise mix is different as well Hypermarkets carry a larger proportion of food items than supercenters
Continued

Food Retailers
Further, fresh food- produce, meat, fish, and so forth- is their specialty, provides a profit center, and is the primary reason why many people shop there Supercenters, on the other hand, have a larger percentage of non- food items Further, on the food side, their specialty is dry grocery, such as breakfast cereal and canned goods, instead of fresh items

Food Retailers
Warehouse Club: A warehouse club is a retailer that offers a limited assortment of food and general merchandise with little service at low prices to ultimate consumers and small businesses Stores are large (at least 100, 000 square feet, with some over 150, 000) and located in low- rent districts They have simple interiors and concrete floors Aisles are wide so forklifts can pick up pallets of merchandise and arrange them on the selling floor Little service is offered. Customers pick merchandise off shipping pallets, take it to the checkout lines in the front of the store, and pay with cash The largest warehouse club chains are Costco Club and Sams Club, a division of Wal-Mart. A distant third is BJs Wholesale Club

Food Retailers
Convenience stores : provide a limited variety and assortment of merchandise at a convenient location in a 2, 000- to- 3, 000- square- foot store with speedy check- out They are the modern version of the neighborhood mom- and- pop grocery/ general store Convenience stores enable consumers to make purchases quickly, without having to search through a large store and wait in a long checkout line Over half the items bought are consumed within 30 minutes of purchase Due to their small size and high sales, convenience stores typically receive deliveries every day

Food Retailers
Merchandise in warehouse clubs is about half food and half general merchandise

Specific brands and items may differ from time to time because the stores buy merchandise available on special promotions from manufacturers
Warehouse clubs reduce prices by using low- cost locations and store designs They reduce inventory holding costs by carrying a limited assortment of fast- selling items Merchandise usually is sold before the clubs need to pay for it

Food Retailers
Convenience stores only offer a limited assortment and variety, and they charge higher prices than supermarkets Milk, eggs, and bread once represented the majority of their sales Now almost all convenience stores in non- urban areas sell gasoline, which accounts for over 55 per cent of annual sales Although the convenience store concept has stagnated a bit in the United States and Europe, it has been growing throughout Japan, the rest of Asia, and in parts of Latin America

The reason is that they are so convenient

Issues in Food Retailing

The primary issue facing food retailers in general, and supermarket and convenience store retailers in particular, is the increasing level of competition from other types of retailers As we mentioned earlier, supercenters in the United States and hypermarkets in the rest of the world are growing at a rapid pace In the United States, this growth has been spurred by Wal-Marts aggressive strategy, which has caused other discount store chains, notably Target and Kmart, to follow suit

Issues in Food Retailing

Competition is coming from other sources as well Drug chains like Walgreens and CVS carry many grocery essentials found in convenience stores, such as bread and milk Fast- food restaurants like Subway sandwich shops have positioned themselves as a healthy food alternative

General Merchandise Retailers

The major types of general merchandise retailers are discount stores, speciality stores, category specialists, department stores, home improvement centers, off- price retailers, and value retailers Many of these general merchandise retailers sell through multi- channels, such as the Internet and catalogs

General Merchandise Retailers

Discount Stores: A discount store is a retailer that offers a broad variety of merchandise, limited service, and low prices

Discount stores offer both private labels and national brands, but these brands are typically less fashion- oriented than brands in department stores
The big three full- line discount stores are Wal-Mart (with 2000 annual sales of $ 191.3 billion), Kmart ($ 37 billion), and Target ($ 36 billion)

General Merchandise Retailers

Specialty Stores: A specialty store concentrates on a limited number of complementary merchandise categories and provides a high level of service in an area typically under 8, 000 square feet Category Specialist: A category specialist is a discount store that offers a narrow variety but deep assortment of merchandise These retailers are basically discount specialty stores Most category specialists use a self- service approach, but some specialists in consumer durables offer assistance to customers By offering a complete assortment in a category at low prices, category specialists can kill a category of merchandise for other retailers and thus called Category Killers

General Merchandise Retailers

Department Stores: are retailers that carry a broad variety and deep assortment, offer some customer services, and are organized into separate departments for displaying merchandise The largest department store chains in the United States are Sears, JCPenney, Federated Department Stores and The May Company

Drug Stores: are specialty stores that concentrate on health and personal grooming merchandise
Pharmaceuticals represent over 50 per cent of drugstore sales and an even greater percentage of their profits The largest drugstore in the United States are Walgreens, CVS, Rite Aid and Eckerds, a division of JCPenney

General Merchandise Retailers

Off- Price Retailers: offer an inconsistent assortment of brand- name, fashion- oriented soft goods at low prices Americas largest off- price retail chains are TJX Companies(operates T. J. Maxx and Marshalls, Ross Stores and Burlington Coat Factory

Closeout Retailers: are off- price retailers that sell a broad but inconsistent assortment of general merchandise as well as apparel and soft home goods The largest closeout chains are Big Lots, Inc. (Big Lots, Big Lots furniture, MacFrugals Bargains Closeouts, Odd Lots, Odd Lots furniture, Pic N Save and Tuesday Morning

General Merchandise Retailers

Outlet Stores: are off- price retailers owned by manufacturers or by department or specialty store chains Value Retailers Value Retailers are general merchandise discount stores that are found in either lower- income urban or rural areas and are much smaller than traditional discount stores (less than 9, 000 square feet)

Non- store Retail Formats

Electronic Retailing (also called e- tailing and Internet retailing) is a retail format in which the retailers communicate with customers and offer products and services for sale over the internet Catalog and Direct- Mail Retailing

Catalog retailing is a non- store retail format in which the retail offering is communicated to a customer through a catalog, whereas direct- mail retailers communicate with their customers using letters and brochures
Types of Catalog and Direct- Mail Retailers
Continued

Non- store Retail Formats

Two types of firms selling products through the mail are (1) General merchandise and specialty catalog retailers and (2) Direct- mail retailers General merchandise catalog retailers offer a broad variety of merchandise in catalogs that are periodically mailed to their customers. For example, JCPenney distributes a 1, 200 page- page catalog to over 14 million people. Besides its general merchandise catalog, Penney distributes 70 specialty catalogs each year

Specialty catalog retailers focus on specific categories of merchandise, such as fruit (Harry and David), gardening tools (Smith & Hawken), and seeds and plants (Burpee)
Continued

Non- store Retail Formats

Direct Selling: is a retail format in which a salesperson, frequently an independent business person, contacts a customer directly in a convenient location, either at the customers home or at work, and demonstrates merchandise benefits, takes an order, and delivers the merchandise to the customer Direct selling is a highly interactive form of retailing in which considerable information is conveyed to customers through face- toface discussions with a salesperson Television Home Shopping is a retail format in which customers watch a TV program demonstrating merchandise and then place orders for the merchandise by telephone The three forms of electronic home shopping retailing are (1) cable channels dedicated to television shopping, (2) infomercials, and (3) direct- response advertising Continued

Non- store Retail Formats

Infomercials are TV programs, typically 30 minutes long, that mix entertainment with product demonstrations and then solicit orders placed by telephone Direct- response advertising includes advertisements on TV and radio that describe products and provide an opportunity for consumers to order them Vending Machine Retailing is a non- store format in which merchandise or services are stored in a machine and dispensed to customers when they deposit cash or use a credit card Vending machines are placed at convenient, high- traffic locations such as in the workplace or on university campuses and primarily contain snacks or drinks

Services Retailing
The retail firms discussed in the previous sections sell products to consumers However, services retailers, firms selling primarily services rather than merchandise, are a large and growing part of the retail industry

There are several trends that suggest considerable future growth in services retailing