Types of Retailers

Chapter 2

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Questions

■ 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

■ 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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Types of Retailers

■ 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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Different Retail Mixes

■ Merchandise: variety (breadth)

■ Assortment (depth)

■ Services

■ Store design, visual merchandising

■ Location

■ Pricing

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Types of Merchandise Retailers

Mom and Pop StoresConvenience Stores

SupermarketsSupercenters

Department Stores

Specialty Stores

Discount Stores

Category Specialists

Off-Price Retailers

Warehouse Clubs

Value Retailers

Food Retailers General Merchandise Retailers

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Merchandise Offering

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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Food Retailers

■ Supermarkets■ Supercenters■ Warehouse

Clubs■ Convenience

Stores

Channel preference for food shopping channel where grocery purchasers do most of their food shopping

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Characteristics of Food Retailers

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Supermarkets

■ 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 Save-A-Lot, ALDI (German’s Wal-Mart)

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ALDI: German’s Wal-Mart

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

4,100 stores in Germany and 6,600 worldwide, including 800 stores in 26 US states

Cheap.. Only two brands of toilet paper and one brand of pickles

STRATEGY:Stores sell less productsALDI exclusive labelHigh quality of products at cheaper prices

HOW?Strong control over quality and priceSimplify shipping and handlingReduce labor costs by keeping limited store staff, etc.

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Trends in Supermarket Retailing

Competition from Discount Stores

Changing Consumption Patterns

Efficient

Distribution Lower Costs Lower Prices

Time Pressure Eating Out More Meal Solutions

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Conventional Supermarket Survival Pack

Chef-crafted meals on the go at EatZi’s

■ Emphasize Fresh Perishables Wegmans

■ Target health conscious and ethnic consumers

■ Provide a better in-store experience

■ Offer more private label brands

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Supercenters and Warehouse Clubs

■ The fastest growing retail category

■ Large stores (150,000 – 220,000 square feet) that combine a supermarket with a full-line discount store

■ One-stop shopping experience

Supercenters

■ 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

Warehouse Clubs

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Convenience Store

■ 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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Types of General Merchandise Retailers

■ Department Stores■ Specialty Stores■ Category Specialists■ Home Improvement Centers■ Discount Stores■ Drugstores■ Off-Price retailers■ Extreme Value Retailers

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Issues in Department Store Retailing

■ 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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Department Stores:What To Do With an Eroding Market

Royalty-Free/CORBIS

To deal with an eroding market

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

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Issues in Discount Store Retailing

■ Only Big Left

Wal-Mart, Target

■ Wal-Mart’s Dominance

■ Differentiate Strategy

Wal-Mart = Low Price and Good value

Target = More Fashionable Apparel

■ Competition from Category Specialists

Toys-R-Us, Circuit City, Sports Authority

McGraw-Hill Companies, Inc./Gary He,

photographer

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Issues in Specialty Store Retailing

■ 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

Hot Topics

McGraw-Hill Companies, Inc./Andrew Resek, Photographer

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Specialty Store Retailers

McGraw-Hill Companies, Inc./Andrew Resek, Photographer

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Issues in Drug Store Retailing

■ Consolidation – Walgreens, CVS, Rite-Aid

■ Competition from 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 in the pharmacy

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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 GrowthBass Pro Shops

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Category Specialists

Sephora,France’s leading perfume/cosmetic chainLVMH’s division

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Issues in Extreme Value Retailing

■ 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 DollarDollar General 99 Cents Only Store

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Off-Price Retailers

■ Close-out retailers■ Offer an inconsistent assortment of brand name

merchandise at low pricesTJX companies (T.J. Maxx, Marshalls. HomeGoods)Ross Stores, Burlington Coat factory, Big Lots, Tuesday

Morning

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Types of Non-store Retailers

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Electronic Retailing

■ Many retailers operate from virtual storefronts on the World Wide Web, usually maintaining little or no inventory, ordering directly from vendors to fill customer orders

■ History of frenzied investments and false predictions of retail dominance

■ Primarily used by traditional retailers to compliment store and catalog offerings

■ Exclusive e-tailers target small and dispersed niche markets

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What are Amazon and eBay?

■ http://www.Amazon.com – Merchandise to consumers. Provides website development and fulfillment services to other retailers

■ eBay – Acts as a mall or other shopping center providing a “place” for buyers and sellers to meet

Don Farrall/Getty Images

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Issues in Catalog Retailing

■ Low Start Up Cost■ Evolution of Multi-Channel Offering■ Hard to compete with large well established firms■ Increasing Mail Costs■ Clutter from other Catalogs■ General merchandise catalogs like JC Penney■ Specialty Catalogs like Victoria Secret

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Issues in Direct Selling

■ Completely bypasses retailers and wholesalers Manufacturers set up their own channels to sell their products

directly to consumers

■ Party plan system: merchandise is demonstrated in a party atmosphere

■ Multi-level network: Master distributors sell to distributors who sell merchandise

■ Pyramid schemes: Firm sells to other distributors and little if any merchandise goes to end users

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Issues in Television Home Shopping

■ Consumers watch cable stations, infomercials or direct response ads

■ Few consumers watch regularly■ Most purchases made by small proportion of viewers■ Customers can’t examine merchandise■ Customers must wait for merchandise to come on■ Sells predominately jewelry, apparel, cosmetics,

kitchenware, and exercise equipment

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Issues in Vending Machine Retailing

■ Automatic Merchandising About $25 billion worth of convenience goods are sold to Americans through

4.7 million vending machines■ Sales growth has been declining due to higher prices and healthier

eating habits■ New technology may help sales growth■ Trend of placing machines in captive consumer locations

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Services vs. Merchandise Retailers

■ 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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Merchandise/Service Continuum

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Types of Retail Ownership

(c) Brand X Pictures/PunchStock

■ Independent, Single Store Establishments

Wholesale-sponsored voluntary group

■ Corporate Retail Chains■ Franchises

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Retailers Using Franchise Business Model

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Franchising

The McGraw-Hill Companies, Inc./Jill Braaten, photographer

■ 30 – 40% of US Retail Sales■ Franchisee Pays Fixed Fee

Plus % of Sales■ Franchisee Implements

Program■ Why is this Ownership

Format Efficient?

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Reasons for Franchising Growth

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

Inept management

Fraudulent activities

Market saturation

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Franchisor Advantages/Disadvantages

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

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

Sustained growth

Enduring plus un-imagined applications

International expansion

Increasing tensions

Greater emphasis on financial returns