C H A P T E R E I G H T E E N · PDF fileall activities involved in selling, renting, and...

18-1© 2000 McGraw-Hill Ryerson Limited

C H A P T E R E I G H T E E N

RETAILING

Walton�s .5 & .10


AFTER READING THIS CHAPTER YOU SHOULDAFTER READING THIS CHAPTER YOU SHOULDBE ABLE TO:BE ABLE TO:

� Identify retailers in terms of the utilities theyprovide.

� Explain the alternative ways to classify retailoutlets.

� Understand the many methods of nonstoreretailing.

� Classify retailers in terms of the retail positioningmatrix.

� Develop retailing mix strategies over the life cycleof a retail store.


Definition of RetailingDefinition of Retailing

Retailing includes . . . .Retailing includes . . . .all activities involved in selling, renting, and providing

goods and services to ultimate customers for personal,

family or household use.

In the channel of distribution, retailing is where the

customer meets the product. It is through retailing that

exchange occurs.

all activities involved in selling, renting, and providing

goods and services to ultimate customers for personal,

family or household use.

In the channel of distribution, retailing is where the

customer meets the product. It is through retailing that

exchange occurs.


Retailing Creates ValueRetailing Creates Value

� Retailing�s economic value is represented by:

1. People employed in retailing, and

2. The total amount of money exchanged in

retail sales.

� Utilities provided by retailers create value forcustomers. Time, place, possession, and formutilities are offered by most retailers.


PP18-1 Which Company Best Represents Which Utilities?PP18-1 Which Company Best Represents Which Utilities?

Royal Bankwww.royalbank.com

Saturnwww.saturncars.com

Levi Strausswww.levi.com

Toys � R � Uswww.toysrus.com

One of the leaders in automated banking, the Royal Bank providescustomers with convenience and 24 hour access to their bankingservices.

Saturn dealers have adopted a one-price strategy that eliminates the need for negotiating. Instead, all customers are offered the same price. Test drives, financing, trade-ins, and leasing are all offered to encourage customers to purchase a Saturn.

Levi Strauss & Co. now offers the Levi�s Original Spin program whichallows customers to create their own jeans by selecting from three models,five leg types, two flys, and many colour and fabric options. The jeans aredelivered in two to three weeks for $55.

A distinctive toy store with a backwards R, this company is what every kiddreams about. Walking into a Toys �R� Us store is like living under a Christmas tree. Unlike most stores, which reduce their space allotted to toysafter the holiday season, a huge selection of toys is always available at Toys �R� Us.

Can you match them?Time Place Possession Form

_____ _____ _____ _____


Global Economic Impact of RetailingGlobal Economic Impact of Retailing

� Retailing is important to the Canadian andglobal economies

� Retail sales in Canada were estimated at $250billion in 2000

� The retail sector employs over 1.8 millionpeople in Canada, approximately 15% of thetotal employed labour force.

� Wal-Mart has 603 stores outside the U.S.,including joint ventures in China and Korea.


Concept CheckConcept Check

1. When Levi Strauss makes jeans cut

to a customer�s exact preferences

and measurements, what utility is

provided?

2. Two measures of the importance of

retailing in the global economy are

________ and ________ .


Classifying Retail OutletsClassifying Retail OutletsRetail outlets can be classified in severalways:

-- Form of ownership. Who owns the

outlet.

-- Level of service. The degree of service

provided to the customer.

-- Merchandise line. How many different

types of products a store carries and in

what assortment.


Form of ownership Independent retailerCorporate chainContractual system � Retailer-sponsored cooperative� Wholesaler-sponsored voluntary chain�Franchise

Level of service Self-serviceLimited serviceFull-service

Merchandise line Depth� Single line� Limited line

Breadth� General merchandise� Scrambled merchandise

PP18-3 Classifying Retail OutletsPP18-3 Classifying Retail Outlets METHOD OF CLASSIFICATION DESCRIPTION OF RETAIL OUTLET


PP18-4 The Possibilities and Costs of FranchisingPP18-4 The Possibilities and Costs of Franchising

FRANCHISETYPE OFBUSINESS

TOTALSTART-UPCOSTS

NUMBER OFFRANCHISES

McDonald�s Fast-food restaurant $385,000-$520,000 19,500

Merry Maids Cleaning service $27,500-$40,500 700

Jiffy Lube Automobile fluid service $208,000-$229,000 667

Duds �N Suds Laundry and snack bar $60,000 80

Radio Shack Electronic accessories $67,500 1,934

Barbizon School of modelling $69,500-$124,000 65


Depth and Breadth of Product LineDepth and Breadth of Product Line

� Depth of product line means that the store carries a largeassortment of each item, such as shoe stores that offerrunning shoes, dress shoes, and children�s shoes.

� Breadth of product line refers to the variety of different itemsa store carries.

-- scrambled merchandising refers to retailers that offer

several unrelated product lines in a single store.

-- hypermarkets are very large retail outlets that have the

goal of offering customers everything at one outlet.

-- supercentres are retailers that combine a typical

merchandise store with a grocery store.


PP18-5 Breadth vs. Depth of Merchandise LinesPP18-5 Breadth vs. Depth of Merchandise Lines

Nike running shoes

Florsheim dress shoes

Top Sider boat shoes

Adidas tennis shoes

Amana refrigeratorSony TV sets

JVC videocassetterecorders

General Electricdishwashers

Sharp microwaveovens

Classical

Rock

Jazz

Country Western

SuitsTies

JacketsOvercoats

SocksShirts

Depth:Number of

items withineach product

line

Breadth: Number of different product lines

Shoes Appliances CDs Men�s Clothing


PP18-6 Differences in Store ConceptsPP18-6 Differences in Store Concepts

DISCOUNT STORE SUPERCENTRE HYPERMARKET

Average size

(in square feet)

Number of employees

Annual sales

($ millions per store)

Gross margin

Number of items stocked

70,000

200-300

$10-$20

18%-19%

60,000-80,000

150,000

300-350

$20-$50

15%-16%

100,000

230,000

400-600

$75-$100

7%-8%

60,000-70,000



1. Centralized decision-making andpurchasing are an advantage of________ ownership.

2. What are some examples of newforms of self-service retailers?

3. Would a shop for big men�s clothescarrying pants in sizes 40 to 60 have abroad or deep product line?


PP18-7 Forms of PP18-7 Forms of NonstoreNonstore Retailing Retailing

Automaticvending

Direct mailand

catalogues

Televisionhome

shopping

Onlineretailing

Tele-marketing

Direct selling

High

Low

Act

ive

cust

omer

invo

lvem

ent

Active retailer involvementLow High


Automatic VendingAutomatic Vending

� Nonstore retailing that makes it possible toserve customers where stores cannot.

� Maintenance and operating costs are high.

� Small convenience products are availablein vending machines.

� Most of the vending machines now in useare soft drink machines.


Direct Mail & CataloguesDirect Mail & Catalogues

� Marketing efficiency is improved throughsegmentation and targeting.

� Customer value is enhanced by providing afast and convenient means of making apurchase.

� Canadians have increased the amount theyspend on direct mail catalogues.

� A typical household receives dozens ofcatalogues each year.


Television Home ShoppingTelevision Home Shopping

� TV home shopping is possible when consumerswatch a shopping channel on which products aredisplayed; orders are placed over the telephone.

� Two popular home shopping programs, theCanadian Home Shopping Network and QVC, reachmillions of Canadian households.

� TV home shopping programs traditionally attract40-50 year old females.

� Limitations of TV shopping have been the lack ofbuyer-seller interaction and the inability ofconsumers to control the items they see.


Online RetailingOnline Retailing

� Online retailing allows consumers to search for,evaluate, and order products through the Internet.

� The advantages of online retailing are:

� ability to comparison shop

� privacy

� variety


TelemarketingTelemarketing

� Telemarketing involves using thetelephone to interact with and selldirectly to consumers.

� As the use of telemarketing grows,consumer privacy has become a topic ofdiscussion among consumers, the federaland provincial governments, andbusinesses.


Direct SellingDirect Selling� Direct selling involves direct sales of goods and

services to consumers through personal interactionsand demonstrations in their home or office.

� Industry sales are declining in Canada as retailchains such as Wal-Mart begin to carry similarproducts at discount prices, and the increasingnumber of dual-career households reduces thenumber of potential buyers at home.

� Many direct selling retailers are expanding intointernational markets to offset the decline indomestic sales.



1. Successful catalogue retailers oftensend ________ catalogues to ________markets identified in their databases.

2. How are retailers increasingconsumer interest and involvement inonline retailing?

3. Where are direct-selling retail salesgrowing? Why?


Retail Positioning MatrixRetail Positioning Matrix

� The retail positioning matrix positions retailoutlets on two dimensions: breadth of productline and value added.

� Breadth of product line is the range ofproducts sold through each outlet.

� Value added includes such elements aslocation, product reliability, and/or prestige.


PP18-8 Retail Positioning Matrix PP18-8 Retail Positioning Matrix

Kmart

Kinney Birk�s

The Bay

Broad

Narrow

Value addedLow High

Breadth ofproduct line


Types of Retailers Keys to SuccessHigh Value-added/Broad Line(The Bay)

Creative merchandising image-- excitement, leaderHigh price/high marginStore Ambiance

Low Value-added/ broad line (Kmart)

Economies of scale--volumeImage--�good guys�, conveniences Low price/low marginLow or self-serviceEfficiency of operations

High Value-added/narrow line (Birk�s)

Unique of high quality products Image--exclusive specialtyHigh price/high marginPersonal service/adviceExpensive presentation

Low Value-addednarrow line(Kinney)

Specialty mass merchandisingImage--value conscious, consistentLow price, loss leadersLittle or self-service�Cookie-cutter� stores

Implications of the Retail Positioning MixImplications of the Retail Positioning Mix


Key to Retail PositioningKey to Retail Positioning

For a store to be successfullypositioned, it must have anidentity which has someadvantages over competitors,and at the same time arerecognized and valued byconsumers.


The Retailing MixThe Retailing Mix

The retailing mix includes:

1. Goods and services

2. Physical distribution

3. Communications tacticschosen by a store.


PP18-9 The Retailing Mix PP18-9 The Retailing Mix

Consumers

Store locationDistribution centres

WarehousingTransportationHandling goods

Packing

Variety and assortmentSales assistanceCustomer servicesPricingCreditGuarantees and exchangesAlterations and adjustmentsStore image and atmosphereParkingDelivery

Personal sellingAdvertisingWindow displaysInternal displaysPublic relations Store layout catalogues Telephone sales


Retail Pricing TerminologyRetail Pricing Terminology� Markup refers to how much should be added to the

cost the retailer paid for the product to reach a finalselling price.

� Original markup is the difference between theretailer�s original cost and initial selling price.

� The maintained markup is the difference between thefinal selling price and retailer cost and is also thegross margin.


Retail Pricing TerminologyRetail Pricing Terminology� Markdown occurs when the product does not sell at

the original price and an adjustment is necessary.

� Shrinkage is theft of merchandise by customers andemployees.

� Off-price retailing involves selling brand namemerchandise at lower than regular prices. Thedifference between the off-price retailer and adiscount store is that off-price merchandise is boughtby the retailer from manufacturers excess inventoryat prices below wholesale prices.


Store LocationStore Location

� central business district

� regional shopping centres

� community shopping centres

� strip location

� power centre

Types of Store Locations



1. What are the two dimensions of the

retail positioning matrix?

2. How does original markup differ from

maintained markup?

3. A huge shopping strip with multiple

anchor stores is a ________ centre.


Passageof time

As time passes,outlet adds services

As more time passes, outletadds still more services

4. New form of outletenters retailingenvironment withcharacteristics ofoutlet in Box 1

4. New form of outletenters retailingenvironment withcharacteristics ofoutlet in Box 1

1. Outlet starts with:Low pricesLow marginsLow status

1. Outlet starts with:Low pricesLow marginsLow status

3. Outlet now has:Still higher pricesStill higher marginsStill higher status

3. Outlet now has:Still higher pricesStill higher marginsStill higher status

2. Outlet now has:Higher pricesHigher marginsHigher status

2. Outlet now has:Higher pricesHigher marginsHigher status

PP18-10 The Wheel of RetailingPP18-10 The Wheel of Retailing


PP18-11 The Retail Life CyclePP18-11 The Retail Life CycleM

ark

et s

hare

or

prof

it

Earlygrowth

Accelerateddevelopment

Maturity Decline

Val

ue-

reta

il s

tore

s

On

lin

e re

tail

ers

Sin

gle-

pri

ce s

tore

s

War

ehou

se c

lub

s

Fas

t fo

od o

utl

ets

Con

ven

ien

ce s

tore

s

Su

per

mar

ket

s

Dep

artm

ent

stor

es

Cat

alog

ue

Ret

aile

rs

Mal

ls (

?)

Gen

eral

sto

re

Fac

tory

ou

tlet

sto

res

Profit

Market share

Sin

gle-

bra

nd

sto

res


Future Changes in RetailingFuture Changes in Retailing

Impact of Technology

Changing Shopping Behaviour

Importance of Brands



1. According to the wheel of retailing,

when a new retail form appears, how

would you characterize it�s image?

2. Market share is usually fought out

before the ________ stage of the retail

life cycle.

3. What is a smart card?

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