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
What is Retailing, and Why is it
Undergoing so Much Change Today?
E-tailing
Price competition
Demographic shifts
Store size
LO 1
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
E-tailing
To combat e-tailing, bricks-and-mortar retailers must give their
customers more control over the shopping experience.

LO 1
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
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
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
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
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
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
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
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
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
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
Exhibit 1.1 - External Environmental
Forces Confronting Retail Firms
LO 1
Categorizing Retailers
Census bureau
Number of outlets
Margin versus Turnover
Location
Size
LO 2
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
Exhibit 1.2 - The Five Methods Used to
Categorize Retailers
LO 2
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
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
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
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
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
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
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
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
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
Low
Turnover
High
Turnover
High Margin
Low Margin
Excellent position
to withstand a
competitive attack
Least able to
withstand a
competitive attack
Margins Versus Turnover
LO 2
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
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
A Retailing Career
Career path
Common questions about a retailing career
Prerequisites for success
LO 3
Exhibit 1.4 - Retailing-Two Career Paths
LO 3
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
Career Path
Buying - The retailing career path whereby one uses quantitative
tools to develop appropriate buying plans for the stores merchandise
lines.

LO 3
Common Questions About a Retailing
Career
Salary
Career progression
Geographic mobility
Women in retailing
Societal perspective
LO 3
Prerequisites for Success
Hard work
Analytical skills
Creativity
Decisiveness
Flexibility
Initiative
Leadership
Organization
Risk taking
Stress tolerance
Perseverance
Enthusiasm
LO 3
The Study and Practice of Retailing
Analytical method
Creative method
A two-pronged approach
A proposed orientation
LO 4
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
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
Exhibit 1.5 - The Importance of Proactive
Planning
LO 4