Types of Retailers

Chapter 2

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

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Bag Borrow or Steal

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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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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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Variety and Assortment of Kayaks in Different Retail Outlets

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Characteristics of Food Retailers

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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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Save-A-Lot

Save-A-Lot’s limited assortment format means that stores carry the most frequently purchased grocery items in the most popular size and variety

The company carries high quality exclusive brands – many produced by the same manufacturers of leading name brands – and an assortment of nationally branded items.

This allows Save-A-Lot to offer savings of up to 40% compared to conventional grocery stores – without asking shoppers to sacrifice quality.

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Characteristics of General Merchandise Retailers

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Three Tiers of Department Stores

■ First Tier: Upscale, high fashion chains with exclusive designer merchandise and excellent customer serviceNordstrom, Neiman Marcus, Saks

■ Second Tier: Retailers sell more modestly priced merchandise with less customer service

Macy’s

■ Third Tier: Value oriented caters to more price conscious customerJCPenney, Sears, Kohl’s

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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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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

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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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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: Home Improvement Centers

Home Depot and Lowes act as both:

Retailer and Wholesaler

Consumer Business

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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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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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Merchandise/Service Continuum

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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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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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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.