Retailing
Chapter 13 with Duane Weaver
RETAILING (defined)
…consists of the activities involved in selling goods
and services to ultimate (end) consumers for
personal consumption.
a.k.a. the buyer is the final/ultimate consumer vs. a
business or institutional buyer
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This distinction from wholesaling is critical to
understanding buying motives that define market
segments.
RETAIL POSITIONING STRATEGY
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Choosing a positioning strategy is key to
retail competitiveness and performance
Choosing:
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Evaluate demand vs. cost-side factors
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Cost: margins and inventory turns
Demand: service outputs
Retail Positioning – Cost Side:
Margin and Inventory Turns
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Traditional: High margin, low turn, numerous
services
(Segmentation IMPACT?)
Modern: Low margin, high turn, minimal service
(Segmentation IMPACT?)
Current Efficiency: follow Modern Model with such
high volumes they can cost justify adding
additional services back into the schema
(Segmentation IMPACT?)
Retail Positioning – Cost Side:
Metrics
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SPM – Strategic Profit Model
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Margin Management: net profit-net sales
Asset Turnover: net sales-total assets
(where net sales = Gross sales less returns and allowances)
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Financial Management: total assets-net worth
If market pressure is downward on margins
then managers may focus on Asset turn.
Retail Positioning – Cost Side:
Metrics (cont’d)
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GMROI: Gross Margin return on inventory investment
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GMROL: Gross Margin Return On Labour
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E.G.: p. 397
Products with different margins may have the same GMROI
Gross Margin per fulltime equivalent employee This approach
realizes that increases in sales people will reduce sales per
person, but may increase profitability as overhead cost is
allocated broader.
GMROS: Gross Margin Return On Square footage
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Gross Margin Return per square foot
Focuses on traditionally unique and high cost asset of retailing
(shelf space, window space, and floor space)
Retail Positioning – Cost Side:
Metrics (cont’d)
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Channel Impacts:
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1.
2.
3.
4.
Retail use of GMROI pressures suppliers to:
Obtain high GMs on their brands
Sales Volumes their brands permit
Footprint of their brand (ft2)
Extra brand/product specific costs such as
storing and handling (refrigeration, special
waste packaging, etc.)
Retail Positioning – Demand Side:
“THE CHOICE OF SERVICE OUTPUTS PROVIDED
DISTINGUISHES THE ATTRACTIVENESS OF A PARTICULAR
PRODUCT TO THE MARKET PLACE”…it solidifies the segmentation
strategy relative to the cost side (value/price…profit/value segment)
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Bulk-Breaking – warehouse type retailers (low price but buy bulk)
Spatial Convenience – specialty products less important, convenience
goods need high spatial convenience
 Wait & Delivery Time – patience varies between consumers and within
one consumer between purchase occasions
 Variety – Variety (breadth of product lines) vs. Assortment (depth of
product brands or models available) Discounters (Mass marketers) have
low variety of low priced fast movers whereas High-End Specialty Stores
(Niche marketers) products are typically stocked with a large line of
products and choices
 Customer Service – retailing still tends to be highly labour intensive (30%
of costs on average)…differentiation through customer service initiatives
Taxonomy of Retailers
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Let’s look at Table 13.4 on p. 404 for an overview
of the multitude of differentiations available to the
retailer.
Note the significant of understanding the target
market and the importance of having the ability to
assess, manage and establish your distribution
channels.
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GROUP EXERCISE:
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For each retailer type, describe at least one significant
change in their distribution channel that could
drastically impact their strategy/market positioning?
STRATEGIC ISSUES IN
RETAILING
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Importance of Convenience to Consumers – measured by the time required to make
a purchase
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Increased Power of Retailers – 1. need for price level competition by retailers, 2.
consolidation of retail outlets, 3. increased marketing pressures pushed up the chain for
price breaks and merchandising support, 4. Product SKU choice allows retailer to focus
on self-preservation over supplier relationship, 5. Technology enables retailers to target
consumer purchases on a one to one basis rather than mass market promotions offered
by manufacturers.
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Broadened Role and Impact of “PRIVATE BRANDING” – 1. store name i.d.
programs, 2. retails brand-name i.d, 3. designer-exclusive, and 4. other exclusive
licensed-name. Allows for exclusivity and avoiding direct price competition. Limits
Supplier/Manufacture Brand building.
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Supplier Strategies re: Retail Power Growth – 1. take more channel flows or develop
new channel technologies, 2. change the role of price promotion within marketing mix,
3. expand product line (low end as well), 4.channel refocus by redirecting non-marketing
investments towards product development and marketing, 5. expand number of
distribution channels (consumer management over category management) - PepsiCo.
STRATEGIC ISSUES IN
RETAILING – cont’d.
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Category Killers (power retailing) –
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Retailing Polarity (Price vs. Quality) – Specialty stores like the GAP, The
Body Shop, and Eddie Bauer (deep assortment, high-touch service, power
retailers) vs. warehouse-style stores like Home Depot, IKEA, Kmart (priceoriented, volume driven, low staffing).
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Characteristics :1. wiling to take risks via market testing and trend forecasting, 2. order
early and sell in high volume, 3. invest large in info systems of broad geography, 4.
commitment to delivering value to customer, 5. emphasis on customer service
Enables: building of dominant assortments within a product category. Chapters, Home
Depot, Toys “R” Us, etc.
Has squeezed out the Department Store “be all things to all people” model. Few left.
Global Retailing – Pressure to globalize is restricted by:
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need for quality real estate locations,
need to develop logistics in other countries,
need to develop supplier relationships in new markets,
differences in zoning, taxes, hours of operation, labour, and regulations
Culturally sensitive packaging adjustments
THANKS
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Always be prepared for a quiz