CHAPTER 2
1
Types of
Retailers
CHAPTER 02
Retailing
Management 8e
McGraw-Hill/Irwin
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© 2012
by The McGraw-Hill Companies, Inc. All rights reserved.
© The McGraw-Hill Companies,Copyright
All rights
reserved.
The World of Retailing
CHAPTER 2
1
Introduction to the World of Retailing
Types of Retailers
Multichannel Retailing
Customer Buying Behavior
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Questions
CHAPTER 2
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• What trends shape today’s retailers?
• What are the different types of retailers?
• How do retailers differ in terms of how they meet the
needs of their customers?
• How do service retailers differ from merchandise
retailers?
• What are the types of ownership for retail firms?
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General Trends in Retailing
CHAPTER 2
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• New Types of Retailers
• Increased Concentration
• Globalization
• Growth In Services Retailer
• Demise of Pure Electronic Retailers (Webvan, eToys, etc)
• Growth in Use of Multi-Channel Retailing by Traditional
Retailers
• Increase Use of Technology to Reduce Cost; Increase
Value Delivered
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NAICS Codes for Retailers
CHAPTER 2
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Types of Retailers
CHAPTER 2
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• Retailers Use Different Retail Mixes
-merchandise: variety (breadth) /
assortment (depth)
-services
-store design, visual merchandising
-location
-pricing
• Infinite Variations
• Some combination of retail mixes
satisfy the needs of significant
segments and persist over time.
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Bag Borrow or Steal
CHAPTER 2
1
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Retailer Characteristics
CHAPTER 2
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• Variety (breadth)
• Assortment (depth)
• Services Offered
• Prices and the cost of offering breath and depth of
merchandise and services
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Merchandise Offering
CHAPTER 2
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Variety (breadth of merchandise): wide vs. narrow
- The number of merchandise categories
Assortment (depth of merchandise): deep vs. shallow
-the number of items in a category (SKUs)
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Services Offered
CHAPTER 2
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• Retailers differ in
the services they
offer customers
• EMS offers assistance
in selecting the
appropriate kayak
and repairing them
VS
• http://www.outdoor
play.com and
• Wal-Mart: doesn’t
provide any services
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Illustration of Variety and Assortment
CHAPTER 2
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Lady Foot Locker
Sports Authority
Active
SKUs: 44
N/A
Classics
SKUs: 44
N/A
Converse
SKUs: 25
N/A
Elite Running
SKUs: 22
N/A
Fitness
N/A
SKUs: 1
Running
SKUs: 44
SKUs: 39
N/A
SKUs: 7
Training
SKUs: 22
SKUs: 2
Walking
SKUs: 11
SKUs: 12
Trail Running
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Prices and the cost of offering breath and
depth of merchandise and services
CHAPTER 2
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• Stocking a deep and broad assortment (like EMS) is
costly for retailers.
Many SKUs
Because the retailer must have backup stock for each SKU
in addition to holding the inventory
Inventory Investment Cost
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Types of Merchandise Retailers
Food Retailers
Mom and Pop Stores
Convenience Stores
Supermarkets
Supercenters
CHAPTER 2
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General Merchandise Retailers
Department Stores
Specialty Stores
Discount Stores
Category Specialists
Off-Price Retailers
Warehouse Clubs
Value Retailers
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Sales and growth rate for retail sectors
CHAPTER 2
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Food Retailers
CHAPTER 2
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• Channel preference for food shopping channel where
grocery purchasers do most of their food shopping
• Supermarkets
• Supercenters
• Warehouse Clubs
• Convenience Stores
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Characteristics of Food Retailers
CHAPTER 2
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Supermarkets
CHAPTER 2
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• Conventional supermarkets
• 30,000 SKU
• Limited assortment supermarkets
(extreme value food retailers)
• 2000 SKU
• Offer one or two brands and sizes
• Designed to maximize efficiency and
reduce costs
• Offer merchandise at 40-60% lower
prices than conventional supermarkets
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ALDI: German’s Wal-Mart
CHAPTER 2
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ALDI provides quality merchandise at low prices by reducing its
assortment in order to control store operating expenses
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ALDI’s Strategy
CHAPTER 2
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8,500 worldwide, including 1000 stores in 26 US states
90 percent of population in Germany shop at Aldi
Cheap..
Only two brands of toilet paper and one brand of pickles
 STRATEGY:
Stores sell less products
ALDI exclusive label
High quality of products at cheaper prices
 HOW?
Strong control over quality and price
Simplify shipping and handling
Reduce labor costs by keeping limited store staff, etc.
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Trends in Supermarket Retailing
CHAPTER 2
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• Competition from Discount Stores
Efficient
Distribution
Lower Costs
Lower Prices
• Changing Consumption Patterns
Time Pressure
Eating Out More
Meal Solutions
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Conventional
Supermarket Survival Pack
CHAPTER 2
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• Emphasize Fresh Perishables
• Wegmans
Chef-crafted meals on the go at EatZi’s
• Target health conscious and
ethnic consumers
• Offer more private label brands
• Provide a better in-store
experience
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Supercenters and Warehouse Clubs
CHAPTER 2
1
Supercenters (Hypermarkets)
Warehouse Clubs
• The fastest growing retail
category
• Large stores (185,000 square
feet) that combine a supermarket
with a full-line discount store
• One-stop shopping experience
• Offer a limited and irregular
assortment of food and general
merchandise with little service at
low prices
• Use low-locations, inexpensive
store design, little customer
service
• Low inventory holding costs by
carrying a limited assortment of
fast selling items
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Convenience Store
CHAPTER 2
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• Tailors assortments to local market
• Makes more convenient to shop
• Offers fresh, healthy food
• Fast, casual restaurants
• Financial services available
• Opening smaller stores closer to consumers (like
airports)
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Characteristics of
General Merchandise Retailers
CHAPTER 2
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Issues in Department Store Retailing
CHAPTER 2
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• Competition
• Discount Stores on Price
• Specialty Stores on Service, Depth of
Assortment
• Lower Cost by Reducing Services
• Centralized Cash Wraps
• More Sales
• Customers Wait for Sale
• Focus on Apparel and Soft Home
• Develop Private Labels and Exclusive
Brands
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Three Tiers of Department Stores
CHAPTER 2
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• First Tier: Upscale, high fashion
chains with exclusive designer
merchandise and excellent
customer service
• Nordstrom, Neiman Marcus, Saks
• Second Tier: Retailers sell more
modestly priced merchandise with
less customer service
• Macy’s
• Third Tier: Value oriented caters
to more price conscious customer
• JCPenney, Sears, Kohl’s
Rob Melnychuk/Getty Images
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Department Stores:
What To Do With an Eroding Market
CHAPTER 2
1
• Department stores are:
• attempting to increase the
amount of exclusive
merchandise they sell
• undertaking marketing
campaigns to develop
strong images for their
stores and brands
• building better
relationships with their key
customers
Royalty-Free/CORBIS
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Issues in Full-line Discount Store
Retailing
CHAPTER 2
1
• Only Big Left
• Wal-Mart, Target
• Wal-Mart’s Dominance
• Differentiate Strategy
• Wal-Mart = Low Price and Good value
• Target = More Fashionable Apparel
McGraw-Hill Companies, Inc.
Gary He, photographer
• Competition from Category
Specialists
• Toys-R-Us, Best Buy, Sports Authority
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Issues in Specialty Store Retailing
CHAPTER 2
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• Mall-Based Apparel Retailers
• Decline in Mall Shopping and
Apparel Sales
• Lack of New Fashions
• Less Interest in Fashion
• Increased Price Consciousness
• Lifestyle Formats
• Abercrombie and Fitch
• Victoria’s Secrets
• Manufacturers opening their
own stores
McGraw-Hill Companies, Inc./Andrew Resek, Photographer
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Specialty Store Retailers
CHAPTER 2
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McGraw-Hill Companies, Inc./Andrew Resek, Photographer
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Issues in Drug Store Retailing
CHAPTER 2
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• Consolidation
• Walgreens, CVS, Rite-Aid
• Competition
• Supermarkets, Discount Stores and
Mail-in orders
• Evolution to a New Format
• Stand Alone Sites with Drive Thru
Windows
• Offering more frequent purchase
food items
• Improved systems provide
personalized service
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Category Specialists
• Deep and Narrow
Assortments
• Destination Stores
• Category killers
• Low Price and Service
• Wholesaling to Business
Customers and Retailing
to Consumers
• Incredible Growth
CHAPTER 2
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Bass Pro Shops
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Category Specialists
CHAPTER 2
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Sephora, France’s leading perfume/
cosmetic chain LVMH’s division
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Issues in Extreme Value Retailing
CHAPTER 2
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• Focuses on Lower Income Consumers
• Names mostly imply good value not $1 price points
• Low Cost Location
• Limited Services
• One of the Fastest Growing Retail Segments
• Dollar Tree
• Family Dollar
• Dollar General
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Off-Price Retailers
CHAPTER 2
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• Close-out retailers
• Offer an inconsistent assortment of brand name
merchandise at low prices
• TJX Companies (which operates T.J.Maxx, Marshalls, Winners,
HomeGoods, TKMaxx, AJWright, and HomeSense),
• Ross Stores,
• Burlington Coat Factory,
• Big Lots.
• http://www.Overstock.com and http://www.Bluefly.com
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Services Retailing
CHAPTER 2
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• Intangibility
• Problems in Evaluating Service Quality
• Performance of Service Provider
• Simultaneous Production and Delivery
• Importance of Service Provider
• Perishability
• No Inventory, Must Fill Capacity
• Inconsistency of the Offering
• Importance of HR Management
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Examples of Service Retailers
CHAPTER 2
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Type of Service
Service Retail Firms
Airlines
American, Delta, British Airways, Singapore Airways
Automobile maint/repair
Jiffy Lube, Midas, AAMCO
Automobile rental
Hertz, Avis, Budget, Alamo
Banks
Citibank, NCNB, Bank of America
Child care centers
Kindercare, Gymboree
Credit cards
American Express, VISA, Mastercard
Education
University of Florida, Babson College
Entertainment parks
Disney, Universal Studios, Six Flags
Express package delivery
Federal Express, UPS, US Postal Service
Financial services
Merrill Lynch, Dean Witter
Fitness
Jazzercise, Bally’s, Gold’s Gym
Health Care
Humana, HCA
Home maintenance
Chemlawn, MiniMaid, Roto-Rooter
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Merchandise/Service Continuum
CHAPTER 2
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Types of Retail Ownership
CHAPTER 2
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• Independent, Single
Store Establishments
• Wholesale-sponsored
voluntary group
• Corporate Retail
Chains
• Franchises
(c) Brand X Pictures/PunchStock
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Retailers Using
Franchise Business Model
CHAPTER 2
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Franchising
CHAPTER 2
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• 30 – 40% of US Retail Sales
• Franchisee Pays Fixed Fee
Plus % of Sales
• Franchisee Implements
Program
• Why is this Ownership Format
Efficient?
The McGraw-Hill Companies, Inc./Jill Braaten, photographer
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Reasons for Franchising Growth
CHAPTER 2
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Technological advances
Profitable utilization of capital resources
Attainment of the “American Dream”
Demographic expansion
Product/service consistency
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Reasons for Franchising Failure
CHAPTER 2
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Inept management
Fraudulent activities
Market saturation
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Franchisor Positions
in the Marketing Channel
CHAPTER 2
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Manufacturer - retailer
Manufacturer - wholesaler
Wholesaler - retailer
Service sponsor - retailer
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Franchisor Benefits
CHAPTER 2
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Continuous market
Market information
Money
Royalty fees
Sales of products
Rental and lease fees
License fees
Management fees
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Franchisee Benefits
CHAPTER 2
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Initial Services
• Market survey and site selection, facility design and layout,
lease negotiation advice, financing advice, operating manuals,
management training programs, and employee training.
Continuous Services
• Field supervision, merchandising and promotional materials,
management and employee retraining, quality inspection,
national advertising, centralized purchasing, market data and
guidance, auditing and record keeping, management reports,
and group insurance plans.
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Franchisor Advantages/Disadvantages
CHAPTER 2
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Advantages
• Rapid expansion, highly motivated franchisees do a good
job, additional profits by selling franchisees products and
services.
Disadvantages
• Company-owned units may be more profitable, less
control then independent retailers over advertising,
pricing, personnel practices, etc.
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Franchisee Advantages/Disadvantages
CHAPTER 2
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Advantages
• Established/proven product/service, business and
technical assistance, and reduction in risk.
Disadvantages
• Loss of control since only semi-independent, franchisee
outlets may compete with corporate-owned outlets, and
high royalties, fees, costs on equipment, supplies,
merchandise, rental/lease rates and mandatory
participation in promotional and support services.
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Franchising Trends
for the New Millennium
CHAPTER 2
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Sustained growth
Enduring plus un-imagined applications
International expansion
Increasing tensions
Greater emphasis on financial returns
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Keywords
CHAPTER 2
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• assortment The number of SKUs within a merchandise category. Also called depth of merchandise.
• breadth of merchandise The number of different merchandise categories within a store or
department.
• category killer A discount retailer that offers a narrow but deep assortment of merchandise in a
category and thus dominates the category from the customers’ perspective. Also called a category
specialist.
• category specialist A discount retailer that offers a narrow but deep assortment of merchandise in
a category and thus dominates the category from the customers’ perspective. Also called a
category killer.
• convenience store A store that provides a limited variety and assortment of merchandise at a
convenient location in a 2,000- to 3,000-square-foot store with speedy checkout.
• conventional supermarket A self-service food store that offers groceries, meat, and produce with
limited sales of nonfood items, such as health and beauty aids and general merchandise.
• department store A retailer that carries a wide variety and deep assortment, offers considerable
customer services, and is organized into separate departments for displaying merchandise.
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Keywords
CHAPTER 2
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• depth of merchandise The number of SKUs within a merchandise category. Also called depth of
merchandise.
• discount store A general merchandise retailer that offers a wide variety of merchandise, limited
service, and low prices.
• franchising A contractual agreement between a franchisor and a franchisee that allows the
franchisee to operate a retail outlet using a name and format developed and supported by the
franchisor.
• full-line discount store Retailers that offer a broad variety of merchandise, limited service, and low
prices.
• hypermarket Large (100,000–300,000 square feet) combination food (60–70 percent) and general
merchandise (30–40 percent) retailer.
• North American Industry Classification System (NAICS) Classification of retail firms into a
hierarchical set of six-digit codes based on the types of products and services they produce and
sell.
• off-price retailer A retailer that offers an inconsistent assortment of brand-name, fashion-oriented
soft goods at low prices.
• specialty store A type of store concentrating on a limited number of complementary merchandise
categories and providing a high level of service.
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Keywords
CHAPTER 2
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• stock-keeping unit (SKU) The smallest unit available for keeping inventory control. In soft goods
merchandise, an SKU usually means a size, color, and style.
• supercenter Large store (150,000 to 220,000 square feet) combining a discount store with a
supermarket.
• supermarket A conventional supermarket is a large, self-service retail food store offering groceries,
meat, and produce, as well as some nonfood items, such as health and beauty aids and general
merchandise.
• value retailers Small, full-line discount stores that offer a limited merchandise assortment at very
low prices.
• variety The number of different merchandise categories within a store or department.
• warehouse club A retailer that offers a limited assortment of food and general merchandise with
little service and low prices to ultimate consumers and small businesses.
• wholesale-sponsored voluntary cooperative group An organization operated by a wholesaler
offering a merchandising program to small, independent retailers on a voluntary basis.
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