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CHAPTER 1
INTRODUCTION TO THE WORLD OF RETAILING
CONVERSION NOTES
Berman & Evans, 10th edition
Chapter 1 & Appendix A
CASES AND ANCILLARY CASES
CASE 1: Tractor Supply Company: Targeting the Hobby Farmer
Synopsis:
The Tractor Supply Company case introduces students to a unique retailing story. By
recognizing a target market with unique needs, TSC repositioned its traditional tractorparts business into a specialty retailer serving a variety of needs for consumers
entertaining their interests in part-time farming and ranching. This growing consumer
segment has been TSC’s focus for the past 15 years as it developed a merchandise
variety and assortment well beyond its early focus on tractor parts. This case provides a
comprehensive illustration of TSC’s retail mix. It describes TSC’s growth strategies with
a specific emphasis on the firm’s current merchandise variety, target market relationships
and technology practices.
CASE 2: Rainforest Café: A Wild Place to Shop and Eat
Synopsis:
Video Segment 5, Rainforest Café, complements this case. The Rainforest Cafe is a
theme restaurant similar in concept to Planet Hollywood and Hard Rock Cafe. The case
describes the concept of a theme restaurant that develops and sells branded merchandise
associated with the restaurant's theme. This case provides a good illustration of
Rainforest Café’s retail strategy with a specific emphasis on the firm’s retail offering and
its relationship to competitors.
CASE 3: Providing a Retail Experience: Build-A-Bear Workshop
Synopsis:
Video Segment 6, Build-A-Bear, complements this case. Build-A-Bear Workshop is a
unique chain of over 170 stores where customers can build their own teddy bears and, in
general, obtain a novel and fun experience. The case highlights the strategy and
operations of a typical store and types of experiences enjoyed by customers. This case
highlights the steps Build-A-Bear takes to implement the firm’s retail mix, including
merchandise and services, pricing and store design.
CASE 4: Wal-Mart and Corporate Social Responsibility
Synopsis:
This case begins with a description of the prominent position Wal-Mart has achieved
within the retail industry. It reviews the foundation of Wal-Mart’s position as the world’s
largest retailer, as well as the reasons behind Wal-Mart’s tremendous success in the
marketplace. The case goes on to describe several of the criticisms that have been leveled
against Wal-Mart, including criticisms of its impacts on small businesses and
communities, its compensation of employees, and its sourcing practices. The case
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provides a foundation for discussion of Corporate Social Responsibility issues using the
example of the world’s largest retailer.
CASE 6: Mall Anchors Away! The Franklins Discover Online Shopping
Synopsis:
Case 6 describes a comparison of one family’s experiences in brick-and-mortar versus
online shopping. Searching for a model to build with his 6-year old son at several types
of store-based retailers, Drew Franklin has the opportunity to review the strengths and
weaknesses of several types of brick-and-mortar formats from category killers to
discounters to specialty stores. The Franklins continue their shopping experience into
nonstore retailing territory, again experiencing all the pros and cons of the online
retailing format. The case provides opportunities to review and compare various bricksand-mortar and online retail formats and strategies with students.
CASE 8: Retailing in India: The Impact of Hypermarkets
Synopsis:
Video Segment 2, Retail Revolution in India, complements this case. The Retailing in
India case describes the efforts of retailers like Wal-Mart, Tesco and Carrefour to
explore opportunities to move into retailing in India through development of
hypermarkets. The case describes economic growth and developments in the Indian retail
marketplace, as well as changes in the behaviors of Indian consumers that have
combined to create a very attractive potential opportunity for global retailers. The case
describes both the opportunities presented for development of the hypermarket format, as
well as the competitive challenges which these hypermarkets will likely create in the
traditional retail markets in India.
CASE 12: The Competitive Environment in the 18- to 22-Year-Old Apparel Market
Synopsis:
American Eagle and Abercrombie & Fitch are rival retailers vying for a competitive
leadership position among the same segment of the teenage/college student market.
Each, however, pursues a slightly different strategy, even though some similarities have
raised legal questions. The case details the strategies, merchandising, operations, and
competitive positions of the two retailers. This case provides an opportunity to examine
and compare the strategies of two competing retailers.
CASE 26 – Discount Dining Draws a Crowd: Restaurant Weeks in Major Cities
Synopsis:
This case describes the growing popularity of Restaurant Weeks in major cities. During
these weeks, anywhere from 60 to 200 restaurants take part in the promotions by offering
special deals to consumers during certain days and times during the event. The case
illustrates this unique trend in food retailing, as well as the promotional strategies
participating retailers and cities use to get the word out about these special events.
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CASE 38: Interviewing for a Management Trainee Position
Synopsis:
Students are asked to participate in a variety of professional development steps in the
context of a retail management trainee position, including evaluating resumes, preparing
his or her own resume and role-playing an interview. The case illustrates important
elements of the interview process for retail management trainees. Use with Appendix 1A.
Ancillary Case A2: Value Retailers: Dollar General and Family Dollar Cater to an
Underserved Market Segment
Synopsis:
Dollar General and Family Dollar are exemplars of the retail category known as extreme
value retailers. The case describes the target market, location, merchandising, buying
and operations strategies of extreme value retailers and also identifies some trends.
Ancillary Case A8: The Gap and Old Navy
Synopsis:
The Gap is a multinational apparel manufacturing and retailing conglomerate. In an
effort to expand and diversify its appeal, the company has in recent years opened up Old
Navy, and Banana Republic. All of the company’s stores have customers of their own,
but they all compete with one another to some extent. This case provides a general
overview of retail strategy and includes discussion of strategy concepts including
merchandise and service offering, target market and store design.
Ancillary Case A9: Blue Sky Surf Shop – Twenty-One Years of Surfing and Still Going
Strong
Synopsis:
Blue Sky Surf Shop is a highly successful specialty store that caters to surfing
enthusiasts. The store, which has been in business for over two decades, draws most of
its business from its loyal customers and word of mouth referrals. This case provides a
general overview of retail strategy and includes a discussion of strategy concepts
including merchandise and service offering, target market and store design.
Ancillary Case A10: Cleveland Clinic
Synopsis:
The Cleveland Clinic is a well-respected health care provider facing a changing
competitive environment. In response to this changing environment, Cleveland Clinic is
opening facilities in South Florida. It illustrates the parallels between health care
(services) retailing and the more traditional in-store retailing formats. This case provides
an overview of the retail strategy used by a service retailer.
Ancillary Case A11: Niketown
Synopsis:
Nike, the manufacturer of the leading brand of athletic shoes, has opened retail outlets to
showcase their products. These outlets have a unique and highly entertaining store
environment. It illustrates an innovative retailing approach that emphasizes store design
and layout to entertain customer while they buy merchandise. The Niketown case
illustrates an innovative retailing approach that emphasizes store design and layout to
entertain customer while they buy merchandise.
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Ancillary Case A13: Marquette Army/Navy Surplus Store
Synopsis:
Army/Navy Surplus store is considering various new strategic directions. The store was
originally a typical military surplus store with a large assortment of military clothing.
Items included used uniforms, canteens, and helmets as well as new merchandise. As the
store grew, it added a department carrying trendy clothing for female teenagers. The
store is facing several problems with its current retail strategy including promotions and
pricing. This case should generate discussion based on retail strategy evaluation and
implementation.
VIDEO SEGMENTS
Video Segment 1: The History of Wal-Mart
Teaching Use: Entrepreneurship in retailing – How Sam Walton started the business
Summary:
This video follows the remarkable growth of Wal-Mart, from the grand opening of Walton's 5 & 10 in the
early 1950s to today. Wal-Mart is the largest retail merchant in the world. This segment discusses the
history of the firm up to the present. Sam Walton started his retailing career by opening a Ben Franklin
franchised variety store in a small town in Arkansas. Then he attempted to convince Ben Franklin to
allow him to sell his merchandise at lower prices so he could open discount stores in small rural
communities. When Ben Franklin decided not to support his concept, Walton proceeded on his own to
open his first discount store in 1960 in Rodgers, Arkansas. This store, store #1, is still open.
The video then traces the evolution of Wal-Mart – national expansion of general merchandise discount
stores, the launching of Sam’s Club warehouse clubs, and international expansion. The video stresses the
importance Wal-Mart places on people, both customers and employees.
Video Segment 2: Retail Revolution in India
Teaching Use: Introduction to the World of Retailing
This video can be used alone or in conjunction with Case 8: “Retailing in India: The Impact of
Hypermarkets,” located in Section V of the textbook.
Summary:
The economy in India is growing by 8% a year, its stock market rose by nearly 40% in 2005 and foreign
investors are flooding in. It is estimated that 70 million Indians in a population of about 1 billion now
earn a salary of $18,000 a year, a figure that is set to rise to 140 million by 2011. Many of these people
are looking for more choices in where to spend their new-found wealth.
Indian retail is heavily underdeveloped and over 95% of the market is made up of small, family-run
stores. There are signs that the Indian government is dropping its traditionally protectionist stance
toward these nine million small grocery shops and opening up its retail market to greater overseas
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investment. This policy change means that, chains like McDonalds, Marks & Spencer, Body Shop and
Ikea can, if they want to, open and control their own operations in India.
The Indian government has been conducting an impact analysis of how the introduction of supermarket
chains like Tesco and Carrefour would affect its retail sector. The government is trying to find a model
that doesn't displace existing retailers. Politicians still feel they have a duty to protect the small
shopkeepers they represent. Leaders realize that foreign investment is badly needed to provide the
infrastructure to upgrade India's retail industry. An estimated 50% of the country's fruit and vegetables
rot by the roadside before they reach market.
Source: Poston, Toby. Countdown to India's retail revolution. BBC News - Online, February 8, 2006,
http://news.bbc.co.uk/2/hi/business/4662642.stm.
Video Segment 3: Staples’ Retail Mix
Teaching Use: Introduction to the World of Retailing
Summary:
Staples is a category specialist in for office supply merchandise. Its retail mix I includes merchandise
(80% national brands and 20% of its own brand); locations (high traffic areas) and store design (popular
products in the front of the store to make it easy to shop for products). It offers its customers the
opportunity to shop for merchandise through multiple channels – store, Internet, and catalogs.
Video Segment 5: Rainforest Café; A Themed Restaurant Chain
Teaching Use: Innovative, new retail concepts. Illustration of use of entertainment in retailing.
This video can be used alone or in conjunction with Case 1: “Rain Forest Cafe,” located in Section
V of the textbook.
Summary:
Rainforest Cafe is a theme restaurant in which the customers are seated in a tropical rainforest
environment. The video shows the unique design of the restaurant, the types of food served, and the
merchandise sold in the restaurant. The use of proprietary animal figures on the merchandise and in the
restaurant design is discussed.
In December 2000, Rainforest Café was purchased from the founders by Landry’s Seafood Restaurants.
At the time, Rainforest Café was experiencing some financial problems due to over expansion. The
growth strategy of Rainforest Café focused the development of Rainforest Café restaurants in both highprofile concentrated tourist areas, and in enclosed shopping mall locations. Most of the mall locations
had high initial revenues that was followed by prolonged revenue declines. (The repeat business was not
high.) While these mall locations generate revenues significantly greater than typical casual dining
restaurants, they also had higher operating costs. This video complements Case 1 in the textbook.
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Video Segment 6: Build-A-Bear: Experiential Retailing
Teaching Use: Innovative, new retail concepts. Illustration of use of entertainment in retailing
This video can be used alone or in conjunction with Case 2: “Build a Bear Workshop,” located in
Section V of the textbook.
Summary:
Build-A-Bear Workshop is a national mall-based specialty store retailer with over 100 locations in the
U.S. The stores target children and sell store stuffed animals. The unique aspect of the firm’s retail
offering is that children can create their own unique animals and clothes them. The video discusses the
critical issues such as employee training and human resource management for a retailer that provide a
high level of customer service.
Video Segment 30: Starbucks – Fair Trade Relationships with Coffee Farmers
Teaching Use: Ethics and Corporate Social Responsibility
This video can be used alone or in conjunction with Case 35 - Starbucks in Section V of the
textbook.
Summary:
The video documents Starbucks’ approach to working with their coffee growers to guarantee the
future availability of coffee beans at prices that are economically viable for the growers.
Starbucks’ need for specialty Arabica beans in The Coffee Belt, between the Tropic of Cancer
and the Tropic of Capricorn, at high elevations represents a very narrow product market. At the
time the video was made, Starbucks 6500+ outlets represented 16% of the specialty coffee
market but specialty coffee represented only 10% of world coffee bean production.
Their long-term commitment to their growers extends far beyond the price paid per pound. They
are negotiating longer-term contracts to guarantee both the availability of product and future
revenue for the growers to enable them to make secure capital investments into their farms. In
addition, Starbucks is partnering with 3rd party financing agencies to extend credit to growers to
enable them to pay their pickers in advance, prior to receiving payment for their coffee crop.
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INSTRUCTOR’S NOTES
ANNOTATED OUTLINE
I. The World of Retailing

Retailing is evolving into a global, hightech business.

When today’s consumer makes a purchase
in their local store, that purchase is often
made possible through the use of
sophisticated communications and
information systems. The use of new
technologies helps retailers reduce their
operations costs, while better serving their
customers.

Retail managers today must make complex
decisions on selecting target markets and
retail locations, determining what
merchandise and services to offer,
negotiating with suppliers and distributing
merchandise to stores, training and
motivating sales associates, and deciding
how to price, promote and present
merchandise.
II. What Is Retailing?

Retailing is the set of business activities
that adds value to the products and services
sold to consumers for their personal or
family use.
Ask students about where they bought their
textbook for the course. One will likely get a mix
of responses, including the college bookstore or
the downtown store, in addition to the Internet or
even from another student. Question students on
the pros and cons of each type of transaction.
See PPT 1-5, 1-6
Ask students to give examples of retailers. One icebreaking activity is to ask each student to list as
many retailers as they can think of in a specified
period of time. Ask the student with the most listed
retailers to read his or her list to the class.
Generally, the student will think of traditional
retailers that sell through stores. By the definition
we propose here, many retailers do not sell
through stores and/or sell services rather than
merchandise. Be sure to discuss the many other
examples such as Quizno’s, QVC, Avon, Jiffy Lube,
Pizza Hut, and airlines.
Certainly students should be encouraged to
consider Internet retailers and multi-channel
retailers like Amazon.com or Barnes and Noble
and BN.com.
As part of your discussion you may also wish to
include universities and colleges. These
organizations sell some services to end users and
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thus are retailers, but they also sell some services
to businesses and thus are channel members, but
not retailers.
A. A Retailer's Role in a Supply Chain


Retailers are the final business in a supply
chain that links manufacturers with
consumers. A supply chain is a set of
firms that make and deliver a given set of
goods and services to the ultimate
consumer.
Manufacturers make products and sell
them to retailers or wholesalers.
Wholesalers engage in buying, taking title
to, often storing, and physically handling
goods in large quantities, then reselling the
goods (usually in smaller quantities) to
retailers or industrial or business users.

Some retail chains are both retailers and
wholesalers. They’re performing retailing
activities when they sell to consumers and
wholesaling activities when they sell to
other businesses like building contractors
or restaurant owners.

In some supply chains, manufacturing,
wholesaling, and retailing activities are
performed by independent firms.

But most supply chains have some vertical
integration. Vertical integration means
that a firm performs more than one level of
activity in the channel. For example, most
large retailers--such as Safeway, Wal-Mart,
and Office Depot --do both wholesaling
and retailing activities

See PPT 1-7, 1-8, 1-10
A typical supply chain network is illustrated in
PPT 1-9
Discuss how, in some channels, consumers can
perform some of the functions performed by
retailers, wholesalers, and manufacturers in other
channels.
For example, assembling furniture or toys is a
function frequently performed by manufacturers
(providing services). Consumers who buy through
discount stores have to discover information about
products on their own. When buying at warehouse
stores, consumers might buy in large quantities
and repackage the food into smaller packages
(breaking bulk and holding inventory.)
Discuss the advantages and disadvantages of
vertical integration. See PPT 1-11 for examples of
types of vertical integration.
Why is Victoria’s Secret vertically integrated while
the local department store is not?
Advantages:
Backward integration occurs when a
retailer performs some distribution and
manufacturing activities, such as operating
warehouses and/or designing private label
merchandise. Forward integration occurs
when a manufacturer undertakes its own
retailing activities, such as Ralph Lauren
opening its own retail stores.
Develop unique merchandise only sold in your
stores.
Better coordination between manufacturing and
retailing.
Disadvantages:
Higher costs because retailer might not be an
efficient manufacturer.
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B. Retailers Create Value


Retailers undertake business activities and
perform functions that increase the value
of the products and services they sell to
consumers.
These functions are:
PPT 1-12, 1-13, 1-14 illustrate the value question
for retailers. See PPT 1-15, 1-16 for an example of
the value added by retailers in the music industry.
Note that retailers and distributors account for a
lot of the cost of a product. A retailer's markup of
50% adds half of the cost in making and getting the
product to the consumer.
Students could be given a hypothetical issue to
debate: Suppose the local grocery store markups
all its products by about 50%? Is the grocery store
profitable?
Some students may confuse the markup of 50%
with profits. The various functions performed by
retailers as noted below would help students
understand the costs borne by retailers.
As an aside, standard industry average profits for
grocery retailing are only in 1-3% range.
See PPT 1-17, 1-18
1. Providing Assortments

Offering an assortment enables customers
to choose from a wide selection of brands,
designs, sizes, colors, and prices in one
location.

All retailers offer assortments of products,
but they specialize in the assortments they
offer. Supermarkets provide assortments of
food, health and beauty care (HBC), and
household products; while Abercrombie
and Fitch provides assortments of clothing
and accessories.
2. Breaking Bulk

To reduce transportation costs,
manufacturers and wholesalers typically
ship cases/cartons of products to retailers.

Retailers then offer the products in smaller
quantities tailored to individual consumers’
and households’ consumption patterns.
Ask students to describe the difference in the
assortments of bicycles provided by Wal-Mart and
the local bike shop. What is the difference in
assortment of body lotions and creams provided by
Bath and Body Works and Kmart?
How many students have made purchases at Sam’s
Club/BJ’s/Costco? What items have the students or
family members purchased in bulk? Discuss the
advantages of buying in bulk. For what purchases
and what types of consumers does buying in bulk
make sense?
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3. Holding Inventory

A major function of retailers is to keep
inventory so that products will be available
when consumers want them, reducing the
consumer’s cost of storing products.
4. Providing Services

Retailers provide services such as credit,
product displays, and sales staff to make it
easier for customers to compare, buy and
use products.
Discuss product categories for which holding
inventory is particularly appealing (e.g., holiday
decorations, seasonal gear).
See PPT 1-19 for an example here
Ask the students what kind of services retailers
provide. Some services are: acceptance of credit
cards, alteration of merchandise, assembly of
merchandise, bridal registry, check cashing, childcare facilities, credit, delivery to home,
demonstrations of merchandise, displaying
merchandise, dressing rooms, gift wrapping, layaway plans, parking, personal assistance in
selecting merchandise, personal shoppers, play
areas for children, presentations on how to use
merchandise, provisions for customers with special
needs (wheelchairs, translators), repair services,
rest rooms, special orders and warranties.
Which of these services do students believe offer
the greatest value to the consumer? Do their
opinions differ for different retailers?
5. Increasing the value of products and
services.

By providing assortments, breaking bulk,
holding inventory, and providing services,
retailers increase the value consumers
receive from their products and services.
III. Social and Economic Significance Of
Retailing
A. Social Responsibility

Ask students how a computer retail store can
increase the value of a computer for a consumer.
Compare the service of a computer store with an
on-line store like Dell.
See PPT 1-20
Ask students which retailers are actively engaged
in CSR.
Retailers
are
socially
responsible
businesses.
Corporate
social
responsibility describes the voluntary See PPT 1-21 for examples of retailers engaging in
actions taken by a company to address the CSR
ethical, social and environmental impacts
of its business operations and the concerns
of its stakeholders.
B. Retail Sales
Discuss what type of changes in the retail industry
may take place in the 21st century. How is
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
U.S. retail sales in 2005 were $4.1 trillion.
However, official statistics include only
store and catalog sales; they don't include
the retail sales of automobiles and repairs.

Although the majority of retail sales take
place in large retail chains, most retailers
are small businesses. In fact, 95% of the
1.9 million retail firms in the U.S. operate
only one store.
C. Employment

Retailing is one of the nation's largest
industries in terms of employment. In
2005, over 24 million people were
employed in retailing, approximately 18%
of the nonagricultural U.S. workforce.
technology affecting the changes in this industry?
Will consumers still go to stores or will they buy
everything from a computer in their houses? What
will stores look like? How will they adjust to the
Internet? Who will be the big winners/losers?
How many students in the class have worked in
retail? Talk about the variety of retail jobs
available to college students.
D. Top 20 Global Retailers





Retailing is becoming a global industry as
more retailers pursue growth by expanding
their operations to other countries.
Large retailers in particular are becoming
increasingly international in geographic
scope.
Exhibit 1-3 lists the 20 largest global
retailers.
The exhibit includes companies that
compete on the basis of price (such as
Wal-Mart), firms that are known for
specific categories (such as Safeway for
groceries and CVS for drugs), and firms
that sell a wide variety of merchandise
through different retail formats (such as
Target).
See PPT 1-22
Are students surprised by any companies on the
list? Why or why not?
Ask what companies will be in the top 5 in 5 years.
Why?
Discuss how some companies are doing a good
job of dealing with changing customer needs and
others are not.
What global retailers have students experienced
while traveling abroad? How do these experiences
compare to the students’ experiences in the local
marketplace?
The 20 largest retailers account for about
35% of the world market. Of the top global
retailers, 36% are headquartered in the
U.S., 36% in Europe and 14% in Japan.
E. Structure of Retailing and Distribution
Channels Around the World
PPT 1-23, 1-24, 1-25 illustrate these different
distribution channels
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
Compared with distribution channels in the
European Union, China and India, the US
distribution system has the greatest retail
density with the greatest concentration of
large retail firms. The combination of
large stores and large firms results in a
very efficient distribution system.

The Chinese and Indian distribution
systems are characterized by small stores
operated by relatively small firms and a
large, independent wholesale industry. As
a result, a larger percentage of labor is
employed in distribution and retailing than
in the US.

Northern European retailing is most similar
to the US system. Southern European
retailing is more fragmented across all
sectors. Central European retailing has
changed from a highly concentrated
structure to one of extreme fragmentation
(involving small family owned stores).

Factors that have created differences in
distribution systems include: (1) social and
political objectives, (2) geography, and (3)
market size.
Ask students to consider several reasons for
differences in distribution systems in various
nations.
How do differences in distribution systems lead to
differences in retail experiences for consumers?
IV. Opportunities in Retailing
A. Management Opportunities


Retailers employ people with expertise and
interest in finance, accounting, human
resource management, logistics, computer
systems, and marketing.
A typical buyer in a department store earns
$50,000 to $60,000 per year. Store
managers often make over $100,000.
B. Entrepreneurial Opportunities

See PPT 1-26, 1-27, 1-28, 1-29 for more
information and examples of opportunities in the
retailing field
Ask students what they think of retailing as a
career. If there are many opportunities and they
seem to pay well, why do most students think that
retailing is not a good job to get after graduation?
Examples of entrepreneurs in retail are shown in
PPT 1-30, 1-31
Retailing provides opportunities for people
wishing to start their own business. Many
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retail entrepreneurs are among the
wealthiest people in the United States.

The successes of Jeff Bezos
(Amazon.com), Anita Roddick (The Body
Shop), Ingvar Kamprad (IKEA) and (Sam
Walton (Wal-Mart) show how each
capitalized on entrepreneurial
opportunities.
V. The Retail Management Decision
Process

What are some ideas that a retail entrepreneur
might consider now near the campus or in the
students’ hometowns?
Use this to discuss the organization of the course
and the book
The book is organized around the
management decisions retailers make to
provide value to their customers and
develop an advantage over their
competitors.
A. Understanding the World of Retailing
(Section I)

Retail managers need a good
understanding of their environment,
especially their customers and
competition, before they can develop and
implement effective strategies.

The critical environmental factors in the
world of retailing are: (1) the
macroenvironment, and (2) the
microenvironment. The impact of the
macroenvironment includes technological,
social and ethical/legal/political factors on
retailing. The retailer’s microenvironment
includes the retailer’s competitors and
customers.
See PPT 1-32 for the Retail Management Decision
Process
Ask students about some changes occurring in the
environment now that will affect retailing in
general and specific retailers. Corporate Social
Responsibility may come up as an answer and the
impacts of CSR on the practice of retailing could
be discussed in detail.
1. Competitors


A retailer’s primary competitors are those
with the same format. Thus, department
stores compete against other department
stores and supermarkets compete with
other supermarkets. This competition
between retailers with the same format is
called intratype competition.
In going through this section, you might pick a
specific local retailer. Ask students to identify the
retailer’s customers, intratype competitors,
intertype competitors, and environmental trends
affecting the retailer.
See PPT 1-34 for examples
To appeal to a broader group of consumers
and provide one-stop shopping, many
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retailers are increasing their variety of
merchandise. Variety is the number of
different merchandise categories within a
store or department. The offering of
merchandise not typically associated with
the store type, such as clothing in a drug
store, is called scrambled merchandising.

Competition between retailers that sell
similar merchandise using different
formats, such as discount and department
stores, is called intertype competition.

Increasing intertype competition has made
it harder for retailers to identify and
monitor their competition. In one sense,
all retailers compete against each other for
the dollars consumers spend buying goods
and services.

Since convenience of location is important
in store choice, a store’s proximity to
competitors is a critical factor in
identifying competition.

Management’s view of competition also
can differ, depending on the manager’s
position within the retail firm.

The CEO of a retail chain may view
competition from a much broader
geographic perspective as compared to a
specific store's manager or a departmental
sales manager within the store.
Ask students to give an example of intratype
competition – local department store competing
against another department store in the same mall
Ask students to compare the different types of
merchandise offered at Wal-Mart to those offered
at, say, Bath and Body Works or McDonald's.
Ask students to give an example of intertype
competition – drug store and discount store that
sell the same brand of cosmetics.
2. Customers

Retailers are responding to broad
demographic and life-style trends in our
society, such as the growth in the elderly
and minority segments of the U.S.
population and the importance of shopping
convenience to the rising number of twoincome families.

To develop and implement an effective
strategy, retailers need to know why
customers shop, how they select a store,
and how they select among that store’s
Query students on the specific impacts of an aging
population or dual-income households on retailing,
including retail location, store layout, etc. What
needs for specific types of merchandise and
services do these markets create?
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merchandise.
B. Developing a Retail Strategy (Section II)


See PPT 1-35
Understanding of the macro- and
microenvironments is needed to formulate
and implement a retail strategy.
The retail strategy indicates how the firm
plans to focus its resources to accomplish
its objectives. The retail strategy
identifies: (1) the target market, (2) the
nature of merchandise and services to be
offered, and (3) how the retailer will build
a long-term advantage over competitors.
How can one retailer gain long-term competitive
advantage over competitors in the marketplace?
(Potential areas for discussion may include:
location, customer relationships, technology,
merchandising, etc.)
Strategic Decision Areas

Key strategic decision areas include the
determination of market strategy, financial
strategy, location strategy, organizational
structure and human resource strategy,
information systems and supply chain
strategies, and customer relationship
management (CRM) strategies.

When major environmental changes occur,
the current strategy and the reasoning
behind it are reexamined. The retailer then
decides what, if any, strategy changes are
needed to take advantage of new
opportunities or avoid new threats in the
environment.

The retailer’s market strategy must be
consistent with the firm’s financial
objectives. Location decisions are
important for both consumer and
competitive reasons. A retailer’s
organizational design and human resource
management strategies are intimately
related to its market strategy. Retail
information and supply chain management
systems will be significant opportunities
for retailers to gain strategic advantage in
the coming decade.

Basic to any strategy is understanding the
customer so as to provide them with the
goods and services they want. Customer
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Relationship Management (CRM) is a
business philosophy and set of strategies,
programs, and systems that focus on
identifying and building loyalty with the
firm's most valued customers.
2. JCPenney Moves from Main Street
to the Mall.

In the late 1950s, Penney was one of the
most profitable national retailers. Its target
market was small towns. In its Main Street
locations, Penney sold staple soft goods at
low prices with minimal service. All sales
were cash; the company didn't offer credit
to its customers.

Organization structure was decentralized.

In spite of its success, there was a growing
awareness among company executives that
macroenvironmental trends would have a
negative impact on the firm.

In the early 1960s, Penney undertook a
new strategic direction that was consistent
with changes it saw in the environment.

All new Penney stores were located in
regional malls across the United States.
Penney opened several mall locations in
each metropolitan area to create significant
presence in each market.

To effectively control its 1,500 stores,
Penney installed a sophisticated
communication network.

Penney launched its catalog operations and
has recently moved aggressively into
selling merchandise over the Internet
(www.jcpenney.com). The firm's multichannel strategy has been very successful,
with the average customer that shops
across all its channels – stores, catalogs,
and the Internet – spending four times
more than the firm's average single
channel customer.

To compete effectively with the retailers
See PPT 1-36, 1-37 to review the strategic
evolution of JCPenney.
Also see PPT 1-38 and 1-39 for similar evolutions
of Wal-Mart and Sears, respectively.
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targeting Penney’s middle-income
customers, the company has made some
radical changes in how it operates, its
organizational structure, and where it
locates its stores.
C. Implementing the Retail Strategy
(Sections III and IV)

To implement the retail strategy,
management develops a retail mix that
satisfies the needs of its target market
better than its competitors.

Elements in the retail mix include the
types of merchandise and services offered,
merchandise pricing, advertising and
promotional programs, store design,
merchandise display, assistance to
customers provided by salespeople, and
convenience of the store’s location.
1. Whole Foods Market: An
Organic and Natural Food Supermarket
Chain





When John Mackey, founder and CEO of
Whole Foods Market, found that textbooks
weren’t going to provide the answers he
was looking for, he dropped out of college,
lived in a vegetarian housing co-op, and
worked in an Austin natural food store.
After he opened his own health-food store
and restaurant, he teamed up with a local
organic grocer to open the first Whole
Foods, which was an instant success.
Whole Foods stores, at 25,000 to 60,000
square feet, are much larger and carry a
much broader assortment than the typical
natural and organic grocery store.
See PPT 1-41 for Key Decision Variables for
Retailers
Ask students what McDonald’s needs to do to
implement its strategy effectively. Have them
discuss each of the elements of the retail mix used
by McDonalds. Compare the retail mix elements
used by McDonalds to the retail mix elements used
by an upscale restaurant in town. Why the retail
are mixes of these two types of restaurants
different? – [They have different target markets
with different needs.]
See PPT 1-40
Ask students what Whole Foods needs to do to
implement its strategy effectively. Have them
discuss each of the elements of the retail mix used
by Whole Foods. Compare the retail mix elements
used by Whole Foods to the retail mix elements
used by a traditional supermarket in town. Why
are the retail mixes of these two types of food
retailers different? – [They have different target
markets with different needs.]
Additional Chapter 1 PPTs illustrate the retail
mixes of several well known retailers. Use these
illustrations to guide discussion on various
strategic choices for different types of retailers.
See:
The stores offer vegetarians as well as
health-conscious nonvegetarians a onestop shopping experience.
PPT 1-42 through 1-48 Wal-Mart’s Retail Mix
The flower power of the 60’s is reflected
in Mackey’s guiding management
principles – love, trust, and employee
PPT 1-56 through 1-62 Macy’s Retail Mix
PPT 1-49 through 1-55 Claire’s Retail Mix
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empowerment.

Mackey also has an old fashioned
competitive drive to dominate Whole
Foods’ segment of the supermarket
industry.

Whole Foods’ latest venture is the opening
of new, exciting 50,000 square foot
versions of its stores pioneering a new
lifestyle concept that synthesizes health
and pleasure.
VI. Ethical and Legal Considerations


Retail managers need to consider the
ethical and legal implications of their
decisions in addition to the effects those
decisions have on the profitability of their
firms and the satisfaction of their
customers.
Ethics are the principles governing the
behavior of individuals and companies to
establish appropriate behavior and indicate
what is right and wrong.

Determining appropriate ethical principles
is a difficult task. Ethical principles can
vary from country to country and can also
change over time.

Many companies have developed codes of
ethics to provide guidelines for their
employees.
PPT 1-63 through 1-69 Target’s Retail Mix
Ask students who have worked for retailers
whether the firm had a code of ethics. What were
some common elements of those codes?
See PPT 1-70, 1-71, 1-72 for a review of ethical
decision making situations and ethical decision
strategies.
Discuss recent news articles relating to retailers
and legal/ethical issues.
VII. Summary

Retailing provides considerable value to
consumers while giving people
opportunities for rewarding and
challenging careers.

The key to successful retailing is offering
the right product, at the right price, in the
right place, at the right time, and making a
profit. To accomplish this, retailers must
understand what customers want and what
competitors are offering.
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VIII. Appendix 1A: Careers in Retailing
See PPT 1-74, 1-75,and 1-76

Retailing offers exciting and challenging
career opportunities. Few other industries
grant as many responsibilities to young
managers.

Retailing offers a variety of career paths
such as buying, store management, sales
promotion and advertising, personnel,
operations/distribution, loss prevention,
and finance in several different corporate
forms such as department stores, specialty
stores, food stores, and discount stores.

In addition, retailing offers almost
immediate accountability for talented
people to reach key management positions
within a decade. Starting salaries are
competitive, and the compensation of top
management ranks among the highest in
any industry.
A. Career Opportunities

Career opportunities in retail firms occur
in merchandising/buying, store
management, and corporate staff functions.

Primary entry-level opportunities for a
retailing career are in the areas of buying
and store management. Buying positions
are more numbers oriented, whereas store
management positions are more people
oriented.
1. Store Management

Successful store managers must have the
ability to lead and motivate employees.
Store management involves all the
disciplines necessary to run a successful
business: sales planning and goal setting,
overall store image and merchandise
presentation, budgets and expense control,
customer service and sales supervision,
personnel administration and development,
and community relations.
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2. Merchandise Management

Merchandise management attracts people
with strong analytical capabilities, an
ability to predict what merchandise will
appeal to their target markets, and a skill to
negotiate with vendors as well as store
management to get things done. Many
retailers break the merchandise/buying
function into two career paths: buying and
merchandise planning.
3. Corporate Staff

Corporate staff opportunities include
positions in MIS, operations/distribution,
promotions/advertising, loss prevention,
finance/control, real estate, store design,
and human resource management.

Career opportunities for corporate staff
positions are more difficult to break into.
B. Myths About Retailing
1. Sales Clerk Is the Entry-Level Job in
Retailing
2. College and University Degrees Are Not
Needed to Succeed in Retailing
3. Retail Jobs Are Low Paying
4. Retailing Is a Low Growth Industry with
Little Opportunity for Advancement
5. Working in Retailing Requires Long
Hours and Frequent Relocation
6. Retailing Doesn’t Provide Opportunities
for Women and Minorities
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ANSWERS TO SELECTED “GET OUT AND DO ITS”
INTERNET EXERCISE Data on U.S. retail sales are available at the U.S. Bureau of the
Census Internet site at http://www.census.gov/mrts/www/mrts.html. Look at the unadjusted
monthly sales by type of retailer. In which quarter are sales the highest? Which types of
retailers have their greatest sales in the fourth quarter?
(in $ millions) US unadjusted retail sales for 2007, for all retail and food service businesses
were 4,482,668. For these businesses overall, sales were highest in the 4th quarter. Sales for
the October-December 2007 quarter were 1,183,792.
(in $ millions) Many types of US retailers posted their highest sales in the 4th quarter of 2007
including Home Furnishings Retailers (15,869), Electronics and Appliances Retailers
(34,764), and Jewelry Stores (11,443). In fact, Jewelry Stores posted sales for the month of
December alone at 37% of their total sales for all 2007!
INTERNET EXERCISE Go to the Macy’s (http://www.macysjobs.com/college), Sears
Holdings (http://www.searsholdings.com/careers/college/aboutus/people.htm), and National
Retail Federation (http://www.nrf.com/RetailCareers/) web sites to find information about
retail careers with these companies. Review the information about the different positions in
these companies. In which positions would you be interested? Which positions are not of
interest to you? Which company would interest you? Why?
Students’ answers will vary considerably here. Some students may take a more long-term view
looking to Buyer or Planner positions which call for a variety of skills including strong
organizational and analytical skills, excellent verbal and written communication skills and extensive
PC experience. These positions also require several years of prior experience in lower-level buying
positions. Other students may find these positions to be more quantitative or analytical than their
interests lie.
Students looking at entry-level positions, as well as those seeking more creative positions or those
with a broader focus may be attracted to the entry-level Fashion Assistant or Product Assistant
positions. These positions request a less comprehensive skill set as well as less emphasis on prior job
experience.
ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS
1.
What is your favorite retailer? Why do you like this retailer? What would a competitive
retailer have to do to get your patronage?
Students may choose an example from a wide variety of retailers. Answers will likely range from
national chains including but not limited to K-Mart, The Gap, Bloomingdale's, McDonald's, The
Sports Authority, Starbucks, JC Penney, to online retailers like Amazon.com and eBay to
favorite local shops and hangouts.
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Whatever selection is made, ask students to concentrate on the specific aspects of retail strategy,
such as: (1) intended target market of the retailer; (2) nature of merchandise and services and the
specific consumer needs sought to be satisfied; (3) product variety and assortments carried; (4)
store location strategy; (5) pricing strategies; (6) specific service strategies; (7) strategies
designed to attract and retain customers; and, (8) strategies specifically designed at gaining a
long-term advantage over competitors.
2.
From your perspective, what are the benefits and limitations of purchasing a pair of jeans
directly from a manufacturer rather than a retailer?
Students may indicate benefits typically associated with “removing the middleman” such as
reduced price and effort in completing the transaction.
While these benefits will occur in specific cases, such as a one-time purchase of jeans from a
specific designer, it must be noted that the average consumer engages in buying dozens of items
on a regular basis. Even if all manufacturers were to offer their products directly to consumers, it
can be readily noted that the consumer would now have to spend an extraordinary amount of time
each day ordering directly from each manufacturer. This should lead to discussion of the
limitations of purchasing directly from the manufacturer rather than a retailer.
Here, the various functions performed by retailers, such as bulk-breaking, holding inventories,
and providing information, service and assortments can be brought to bear on overcoming the
limitations discussed above for the consumer. Bulk-breaking enables consumers to buy only the
specific amount they would need. Retail inventory helps eliminate the need for consumers to
hold their own inventory, since they could simply satisfy their needs for a specific and immediate
time-period, such as buying one unit of dish washing detergent that would last the next 2 months.
Retailers provide valuable information and services that save consumers time and effort as
compared to when consumers attempt to obtain such information by themselves or serve
themselves. By providing an assortment of products and brands in one location – in some cases
of scrambled merchandising, a very wide assortment of products and brands – retailers help
consumers engage in one-stop shopping, thereby saving them the time and effort for other
productive and leisure activities.
Further, it would be uneconomical for most manufacturers, especially those selling low-priced
items, such as toothpaste directly to each consumer or household. In general, even if retailers are
eliminated from the supply chain, their functions remain. Often these functions would be
distributed between the manufacturer and consumers. For example, manufacturers would now
have to produce a wider variety of products (in order to offer an assortment) and consumers
would have to carry greater amounts of inventory (to buy a case-load of toothpastes!). The
distribution of retail functions would increase manufacturer costs as well as consumer costs and
efforts. One may argue that "buying cheaper from the manufacturer" is, in a vast majority of
cases, a myth.
3.
What retailers would be considered intratype competitors for a convenience store chain
such as 7-Eleven? What firms would be intertype competitors?
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Discussion should lead to those convenience stores in the local market offering the traditional
convenience store retail mix including gasoline, snacks, newspapers, coffee, and a limited variety
of grocery items.
Ask students to discover intertype competitors for 7-Eleven by focusing on a particular
merchandise offering such as a gallon of milk, a fountain soda or a candy bar. This discussion
will illustrate that intertype competition for 7-Eleven may come from a number of retailers
offering similar merchandise through different formats, such as supermarkets, fast food
restaurants or discount stores.
4.
Does Wal-Mart contribute to or detract from the communities in which it operates its
stores?
Students may argue either in favor of or against the large discount stores, such as Wal-Mart. The
arguments against may include:
(1) smaller family-owned firms may not be able to compete on the basis of price with Wal-Mart
and hence would have to close down, resulting in loss of entrepreneurial opportunities within the
community;
(2) the personal service of a Mom-and-Pop store is now replaced by an impersonal cash register
clerk and very few employees offering information and service within the store; and,
(3) over a period of time, there may be no competition for the larger store, which may begin to
charge higher prices, from a monopoly position.
On the other hand, the arguments in favor include:
(1) greater product assortment and choice for the consumer at lower prices;
(2) one-stop shopping convenience for the consumer, freeing up the consumer's time for other
productive and leisure activities;
(3) immediate increase in employment at various levels of the local, large store organization;
and,
(4) greater opportunities at the supply level, since the large store would have to rely on local
supply sources for a variety of products, especially perishables.
In general, students would see both the arguments for and against the large store. However, one
could also add that smaller firms providing superior service or other forms of consumer value
apart from price would prevail despite the presence of a large store competing on the basis of
price. Examples include electronics stores that provide greater consumer information and
expertise, or customized services such as portrait framing, etc. Given that modern retailing has
seen several different types of retailers emerge and compete successfully, it is debatable if the
large store would ever actually become a monopoly. As long as some consumers continue to
seek a wide variety of retail offerings beyond price, other retailers or retail formats will emerge
to challenge the growing monopolization by the larger store.
5.
Choose a U.S.-based retailer that wants to open a new store outside the United States for
the first time. Which country should it pursue? Why?
Students may point out global retail expansions they are aware of here. This could include WalMart or Home Depot’s expansions to other countries. They should consider differences in
retailing practices and distribution channels in various countries in selecting the most appropriate
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match for their retail store of choice, such as supply chains, availability of land and restrictions to
be considered for new stores, as well as consumer buying and shopping habits.
6.
Why do retail managers need to consider ethical issues in making decisions?
As do all managers in today’s business world, retail managers must consider the ethical
implications of the decisions that they make. These considerations go steps beyond the legal
aspects of a situation to determine appropriate behaviors and the choice between right and wrong
courses of action. Special consideration must be given to the effects of these decisions on the
profitability of the manager’s firm and the welfare of the firm’s customers, employees and
communities. Fortunately, many retail firms have developed codes of ethics to provide guidelines
for employees in making the ethical decisions they face. These policies provide a clear sense of
what the individual firm considers to be right or wrong.
7.
Choose one of the top 20 retailers (Exhibit 1-3). Go to the company’s Web site and find out
how the company started and how it has changed over time?
From the Exhibit of the Top 20 retailers, students can see that in general, European retailers have
been more successful in expanding to more countries as compared to U.S. retailers. In general,
given smaller sizes of the countries in which these retailers originated, they had to expand to
other country markets to sustain their growth strategies. By contrast, the U.S. retailers have
enjoyed a larger market size within the U.S. alone, thereby rendering global expansion less of a
priority for them. Students will also note that food retailing dominates among the largest
retailers, as 8 of the top 10 sell food products.
8.
From a personal perspective how does retailing rate as a potential career compared to
others you are considering?
After reading the chapter, some students may already be attracted to retailing as a career, since
they would now have realized the wide variety of opportunities provided in the retail sector. At
the same time, some may compare retailing less favorably to other potential career paths, such as
advertising, or more immediately lucrative endeavors, such as the stock market. Ultimately, all
students should have recognized that retailing is not simply being a store associate, greeting the
customer and making a sale. Those students interested in the technology field should see a
variety of opportunities to make a career in retailing, as should those with interests in finance,
accounting or human resource management.
9.
How might managers at different levels of a retail organization define their competition?
Perceptions of competition may vary across different levels of a retail organization since retail
managers are concerned mainly with their specific scope of activities and responsibilities.
Departmental sales managers may be viewing competition primarily at the product level. For
example, the men’s clothing department manager at Bloomingdales would try to monitor, analyze
and react to the strategies of Lord and Taylor's or a smaller specialized men's clothing store
located in the same mall. The store manager's view of competition would be slightly broader,
encompassing all product categories within a specific location. For example, the manager of a
local McDonald's would view other fast food stores in the neighborhood as competitors, while
the store manager at K-Mart would view Wal-Mart and other discount stores in the area as
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competitors. At the broader chain store headquarter level, the CEO may view as competition as
the struggle for dominance of specific regional or national markets. For example, in certain
areas, Blockbuster may view competition from other video rental chains as intense but in others,
may view their competition to be supermarkets renting out videos, movie theaters, regular and
cable TV and other forms of entertainment, including ballet and opera.
10. Retailing View 1.1 describes how some retailers are acting socially responsible. Take the
perspective of a stockholder in the company. What effect will these activities have on the
value of its stock? Why might they have a positive or negative effect?
Stockholders may see both positive and negative effects on stock value resulting from the firm
and its employees undertaking socially responsible activities. Positive impacts on value are likely
to come from increased loyalty from both customers and employees. Customers in local
communities directly aided by the firms’ employees as well as those customers learning about the
retailers’ activities through local and national media channels are likely to form favorable
impressions of the retailer through learning of its socially responsible actions. These positive
impressions may contribute to greater patronage and loyalty to the retailer in return for its
generosity and community support.
These retailers may realize positive value through creating employee loyalty as well. In a high
turnover industry like retailing, creating a pool of loyal and dedicated employees by investing in
their own socially responsible actions appears to be a winning strategy. Awareness of these
practices may also give these retailers an edge in recruiting high quality potential employees to
the organization.
On the other hand, the stockholder may have concerns about negative impacts on company value.
From his or her perspective, the company is in business to make a profit. If the stockholder views
the contributions of supplies, employee time, and limitations placed on suppliers as taking away
from the bottom-line profitability of the firm, that stockholder may view the retailer’s social
responsibility programs to be a negative impact on the value of the firm.
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