into to world of retailing

8/8/2019 Into to World of Retailing

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McGraw-Hill/Irwin

Retailing Management, 7/e 2008 by The McGraw-Hill Companies, All rights reserved.

Chapter 1

Introduction to the World of Retailing


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The World of Retailing

Introduction to Retailing

Types of Retailers

Multi-Channel Retailing

Customer Buying Behavior


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Questions

What is retailing?

What do retailers do?

Why is retailing important in our society? What career and entrepreneurial opportunities

does retailing offer?

What types of decisions do retail managersmake?


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What is Retailing?

Retailing a set of businessactivities that adds value tothe products and services

sold to consumers for theirpersonal or family use

A retaileris a business that

sells products and/orservices to consumers forpersonal or family use.


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Examples of Retailers

Retailers:Kohls, Macys,

Wendys,Amazon.com, JiffyLube, AMC Theaters,American EagleOutfitter, Avon, J.Crew

Firms that are retailers and wholesalers - sell toother business as well as consumers:

Office Depot, The Home Depot, United Airlines, Bank ofAmerica, Costco


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Manufacturers Perspective

The Four Ps of Marketing

Distribution

Retailers are part of the

distribution channel

Retailers are part of the

distribution channel

Product

Price

Promotion


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Distribution Channel


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Typical Supply Chain Network

Suppliers Plants

DistributionCenters

Customers

retailers


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A Retailers Role in a Supply Chain

Retailers are the final business within a supplychain which links manufacturers to consumers.

A Supply Chain is a set of firms that make anddeliver a given set of goods and services to theultimate consumer.


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Manufacturing, Wholesaling and Retailing

Vertical Integration firm performs more than one set of activities inthe channel

Ex: retailer invests in wholesaling or manufacturing

Backward Integration retailer performs some distribution andmanufacturing activities

Ex: JCPenney sells Arizona jeans (Private Label)

Forward Integration manufacturers undertake retailing activities

Ex: Ralph Lauren (New York Jones, Liz Claiborne) operates itsown stores

Large retailers engage in both wholesaling and retailing

Ex: Wal-Mart, Lowes, Safeway, Brown Shoe Company


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Do Retailers Add Value?

a box of crackers at a grocery store

costs $1 to manufacturer

sells at a price of $2

Retailers add significantly to the prices consumers face

Why not buy directly from the manufacturer?

Does that mean that grocery stores are very profitable?

Example


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Manufacturer

Vendor

Distributor

Wholesaler

Retailer

$1.00 $1.20 $2.00

$.85 $.15 $.70

Consumer

Price to

Distributor

Price to

Retailer

Price to

Consumer

Why Not Get Rid of the Middlemen?


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Better services tocustomersMore efficient

Why Not Get Rid of the Middlemen?


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Music Industry Channel

Composer

LyricistPublisher

Record

CompanyMusic Retailer

Artist Distributor


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Cost for CD

Retailer $5.00

Record Company

Manufacturing .75

Distribution 1.50Marketing 2.00

Coop advertising 1.00

Artist/Repertoire 1.00

Artist royalty 1.25

Lyricist .75Overhead/Profit 2.00

Total 15.25

4 out of 5 CDs fail tomake a profit

$300,000 cost toprepare a CD forrelease

30,000 recordingartists


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How Retailers Add Value

Provide Assortment

Buy other productsat the same time

Break Bulk

Buy it in quantitiescustomers want

Hold Inventory

Buy it at aconvenient placewhen you want it

OfferServicesSee it before you

buy; get credit;layaway

Ryan McVay/Getty Images


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How Retailers Add Value

The value of the product and serviceincreases as the retailer performs functions.

Bicycle is developed

at manufacturer

Bicycle isdeveloped inseveral styles

Bicycle is offered inconvenient locations

in quantities of one

Bicycle is featuredon floor display

Bicycle can bebought on credit or

put on layaway


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Examples: How Retailers Add Values

BagBorrowerSteal.com jewelry and bag rental; Get (not buy, but borrow) exactly what you

want Home Depot

DIYer (Do-it-yourselfer); Learn how to do it yourself with in-storeclinics and online workshops


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Social and Economic Significance of Retailing

Retail Sales:

Over $4.1 trillion in annualU.S. sales in 2005

Employment: Employs over 24 million

people in 2005

One of the largest sectors

for job growth in US Social responsibility

Global player


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Social responsibility

Corporate social responsibility The voluntary actions taken by a

company to address the ethical,social, and environmental impactsof its business operations, inaddition to the concerns of itsstakeholders

Examples: Edun - a fair-trade fashionbrand by the U2 lead singer Bono Starbucks: pays its farmers 42%

more than the commodity price ofArabica coffee beans

Target: community giving programs(5% of income, $3 million a week)

Retail companies give away 1.7% oftheir profits, compared with about 0.9%for companies in other industries


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Worlds 20 Largest Retailers in 2005


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Structure of Retailing and Distribution Channels around theWorld: The United States

The nature of retailing anddistribution channels in the U.S.is unique.

Has the greatest retail density Has the greatest concentration of

large retail firms

Large enough to operate theirown warehouses, eliminating the

need for wholesaling. The combination of large stores

and large firms result in a veryefficient distribution system.

CHINAThe United States


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Comparison of Distribution Channelsaround the World


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What have created these differencesin distribution systems?

Social &PoliticalObjectives

China, India: To reduce unemployment byprotecting small businesses

EU: To protect small retailers

To preserve green spaces/town centers

Geography Much lower population density in the US than in India,China, and EU (where less low-cost real estate areavailable for building large stores)

Market size Large retail markets in US, India, China

Countries in EU distribution channels and retailchains operate in a single country (no economy of scalesto be achieved; trade barriers still exist)


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Nature of Retail Industry is Changing

Mom and Pop Store

To Todays Retailer


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Retailing is a High Tech Industry

Selling Merchandise through the Internet

Using Internet to manage supply chains

Analyze POS data to tailor assortments to stores

Computer systems for merchandise planning andtracking


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Retailers are a Business LikeManufacturers

The McGraw-Hill Companies,Inc./Andrew Resek, photographer

MIS

Accounting

Operations

Finance

Marketing

Human Resources


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Opportunities in Retailing:Management opportunities

People with a wide range of skills and interests neededbecause retailers functions include Finance Purchase Accounting Management information system (MIS) Supply management including warehouse and

distribution management Design and new product development

Financially rewarding 5-year salary of buyers: $50,000 - $60,000 5-year salary of store managers: $120,000 - $160,000


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Opportunities in Retailing:Entrepreneurial opportunities

Retailing provides opportunities forpeople who want to start their ownbusiness

Some of the worlds richest people

are retailing entrepreneurs

Examples of retailingentrepreneurs

Sam Walton (Wal-Mart)

Jeff Bezos (Amazon.com)IngvarKamprad (IKEA)Anita Roddick (the Body Shop)

Wal-Mart: Sam Walton

IKEA: IngvarKamprad


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Career Opportunities in RetailingStart Your Own Business

Walton Family (Wal-Mart)

Fisher (The Gap)

Wexner (The Limited)

Menard (Menards)

Marcus (The Home Depot)

Kellogg (Kohls)

Schulze (Best Buy)

Levine (Family Dollar)

Gold (99Cent Only)

List of Retail Entrepreneurs on Forbes 400 Richest Americans


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Misconceptions About Careers in Retailing

College not needed

Low pay

Long hours

Boring

Dead-end job

No benefits

Everyone is part-time

Unstable environment

No opportunity for women and minorities

The McGraw-Hill Companies, Inc./Andrew Resek, photographer


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Why You Should Consider Retailing

Entry level management positions:

Department manager or assistant buyer/planner

Manage and have P&L responsibility on your first job Starting pay average with great benefits

Some retailers pay graduate school

No two days are alike

Buying and planning for financially analytically oriented

Management for people-people


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Types of Jobs in Retailing

Most entry level jobs are instore management or buying, but theres

-accounting and finance

-real estate

-human resource management

-supply chain management

-advertising

-public affairs

-information systems

-loss prevention

-visual merchandising


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Retail Management Decision Process


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Strategic Vs Tactical Decisions

Doing the Right Thing (direction) vs.

Doing Things Right (execution)

Strategic Decisions Are:

Made Infrequently Long-term

Require significant investment

Not easily reversed

Location, Organization Design, Information andDistribution Systems, Customer Service


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Retail Strategy

Need to identify the competition

intratype competition

(e.g., Dillards vs. JCPenney)

intertype competition

(e.g., Dillards vs. Wal-Mart)

Identifying customers

What are the significantdemographic and life-styletrends

Who are your targetcustomers


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Retail Strategy

A retail strategy should identify

the target market

the product and service mix

a long-term comparative advantage


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JC Penneys Strategic Evolution(1)

Main Street (small town) privatelabel, soft goods (apparel, homefurnishings), decentralized retailer

Changes in environment --

increased disposable income,growth of suburbs, interstatehighway program

Emulate Sears in moving toenclosed suburban malls Add hard goods (appliances,

automotive) Diversify drug stores,

insurance, specialty stores Develop catalog channel


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JC Penneys Strategic Evolution(2)

Focus on department store formatand soft goods develop electronicretail channel

Mid-market, mall based departmentstore, between Wal-Mart/Target andMacys/Dillards

Competition from Target, Kohls Centralization to reduce cost,

increase responsiveness -centralized buying, warehousedelivery

Off the mall stores to increase

customer convenience Improving store atmospherics Upgrading merchandise offering

(e.g., Sephora, American Living byPolo Ralph Lauren)


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Wal-Marts Strategic Evolution

Small Town - Discount Store selling hard goodsand soft goods

limited service, efficient distribution

Enter suburban markets

Warehouse Clubs (Sams)

Supercenters

International Expansion

Supermarkets, neighborhood markets


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Sears Strategic Evolution

Large number of merchandise categories --appliances, hardware, apparel

Malls evolved into places for buying soft goods,

hard goods sold at category killers

The Softer Side of Sears

Refocused on value -- Testing carts in stores

Acquired Lands EndAcquired by Kmart


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Whole Foods Implementation

Strategy - organic and natural foods supermarket chainAssortment beyond organic/natural foods

Private labels - Whole Food, 360 Day ValueLove, trust, and employee empowermentEquality in compensation


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Decision Variables for Retailers

CustomerService

Store Designand Display

MerchandiseAssortment

CommunicationMix

LocationPricing

Retail

Strategy


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Wal-Marts Retail Mix

Retail Strategy

CustomerService

Location


PricingCommunicationMix

Store DesignAnd Display


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Free-standing Stores

CustomerService


PricingCommunication

Mix

Store DisplayAnd Design

Location Strategy


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Location

Pricing

Communication

Mix


Customer

Service

Large Numberof Categories

Few Items

in Each Category

Assortment Strategy


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Location

CommunicationMix


CustomerService


Low, EDLP

Pricing Strategy


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Communication Mix

TV and NewspaperInsert Ads

Location

Pricing


CustomerService



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Store Design and Display

Basic, SpecialDisplays

for Products

CustomerService Location

MerchandiseAssortments

PricingCommunication

Mix


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Customer Service

Limited

Location


Pricing

CommunicationMix



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Claires Retail Mix

Retail Strategy


Merchandise

Assortment

PricingCommunication Mix

Store Design

and Display


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Claires Retail Mix

Enclosed malls

Customer Service

Merchandise

Assortment


Store Display

And Design

Location Strategy


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Claires Retail Mix

Location


Store Design

and Display

Customer Service

Jewelry, accessories andcosmetics for tweens and

teens

Assortment Strategy


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Claires Retail Mix

Location

Communication Mix

Store Design

and Display

Customer Service

Merchandise Assortment

Modest with Sales

Pricing Strategy


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Claires Retail Mix

Communication Mix

TV and Magazine Ads

Store Design

And Display

Customer ServiceLocation


Pricing


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Claires Retail Mix


Bright, fashionable and fun

boutique layout

Customer Service Location

Merchandise Assortments



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Claires Retail Mix

CustomerService

Modest

Location


Pricing

Communication Mix



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Macys Retail Mix

Retail Strategy


Merchandise

Assortment


Store Design

and Display


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Macys Retail Mix

Enclosed Malls

Customer Service

Merchandise

Assortment


Store Display

And Design

Location Strategy


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Macys Retail Mix

Location

Pricing

Communication Mix

Store Design

and Display

Customer Service

Many Items in Apparel

and Soft Home

Assortment Strategy


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Macys Retail Mix

Location

Communication Mix

Store Design

and Display

Customer Service


Moderate with

Frequent Sales

Pricing Strategy


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Macys Retail Mix

Communication Mix

TV, Newspaper Ads and

Special Events

Store Design

And Display Merchandise Assortment

Pricing

Customer ServiceLocation


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Macys Retail Mix


Racetrack with Displays





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Macys Retail Mix

CustomerService

Modest

Location


Pricing

Communication Mix



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Targets Retail Mix

Retail Strategy


Merchandise

Assortment


Store Design

and Display


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Targets Retail Mix

Free-standingStores

Customer Service

Merchandise

Assortment


Store Display

And Design

Location Strategy


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Targets Retail Mix

Location

Pricing

Communication Mix

Store Design

and Display

Customer Service

Large Number of Categories

Private Labels

Few Items in Each Category

Assortment Strategy


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Targets Retail Mix

Location

Communication Mix

Store Design

and Display

Customer Service


Low to Modest

Pricing Strategy


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Targets Retail Mix

Communication Mix

TV and Newspaper

Insert Ads


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Targets Retail Mix


Colorful, wide aisles displays

for products with a grid layout





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Targets Retail Mix

CustomerService

Limited

Location


Pricing

Communication Mix



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Ethical Situations for a Retail Manager

Should a retailer sell merchandise that they suspect utilizedchild labor?

Should it advertise that its prices are the lowest in an areaeven though some items are not?

Should a buyer accept an expensive gift from a vendor?

Should salespeople use high-pressure sales when they knowthe product is not the best for the customers needs?

Should a retailer give preference to minorities when making apromotion decision?

Should a retailer treat some customers better than others?


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Checklist for Making Ethical Decisions

You are Faced with an Ethical Decision:


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You are Faced with an Ethical Decision:What Can You Do?

Ignore your personal values and do what yourcompany asks you to do you will probably feeldissatisfied with your job .

Take a stand and tell your employer what youthink. Work to change the policies.

Refuse to compromise your principles youcould lose your job!

into to world of retailing

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