CHAPTER 1INTRODUCTION TO THE WORLD OF RETAILINGCONVERSION NOTESBerman & Evans, 10th edition Chapter 1 & Appendix A

CASES AND ANCILLARY CASES

CASE 1: Tractor Supply Company: Targeting the Hobby Farmer

Synopsis: The Tractor Supply Company case introduces students to a unique retailing story. By recognizing a target market with unique needs, TSC repositioned its traditional tractor-parts business into a specialty retailer serving a variety of needs for consumers entertaining their interests in part-time farming and ranching. This growing consumer segment has been TSC’s focus for the past 15 years as it developed a merchandise variety and assortment well beyond its early focus on tractor parts. This case provides a comprehensive illustration of TSC’s retail mix. It describes TSC’s growth strategies with a specific emphasis on the firm’s current merchandise variety, target market relationships and technology practices.

CASE 2: Rainforest Café: A Wild Place to Shop and Eat

Synopsis: Video Segment 5, Rainforest Café, complements this case. The Rainforest Cafe is a theme restaurant similar in concept to Planet Hollywood and Hard Rock Cafe. The case describes the concept of a theme restaurant that develops and sells branded merchandise associated with the restaurant's theme. This case provides a good illustration of Rainforest Café’s retail strategy with a specific emphasis on the firm’s retail offering and its relationship to competitors.

CASE 3: Providing a Retail Experience: Build-A-Bear WorkshopSynopsis: Video Segment 6, Build-A-Bear, complements this case. Build-A-Bear Workshop is a

unique chain of over 170 stores where customers can build their own teddy bears and, in general, obtain a novel and fun experience. The case highlights the strategy and operations of a typical store and types of experiences enjoyed by customers. This case highlights the steps Build-A-Bear takes to implement the firm’s retail mix, including merchandise and services, pricing and store design.

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CASE 4: Wal-Mart and Corporate Social Responsibility

Synopsis: This case begins with a description of the prominent position Wal-Mart has achieved within the retail industry. It reviews the foundation of Wal-Mart’s position as the world’s largest retailer, as well as the reasons behind Wal-Mart’s tremendous success in the marketplace. The case goes on to describe several of the criticisms that have been leveled against Wal-Mart, including criticisms of its impacts on small businesses and communities, its compensation of employees, and its sourcing practices. The case provides a foundation for discussion of Corporate Social Responsibility issues using the example of the world’s largest retailer.

CASE 6: Mall Anchors Away! The Franklins Discover Online Shopping

Synopsis: Case 6 describes a comparison of one family’s experiences in brick-and-mortar versus online shopping. Searching for a model to build with his 6-year old son at several types of store-based retailers, Drew Franklin has the opportunity to review the strengths and weaknesses of several types of brick-and-mortar formats from category killers to discounters to specialty stores. The Franklins continue their shopping experience into nonstore retailing territory, again experiencing all the pros and cons of the online retailing format. The case provides opportunities to review and compare various bricks-and-mortar and online retail formats and strategies with students.

CASE 8: Retailing in India: The Impact of Hypermarkets

Synopsis: Video Segment 2, Retail Revolution in India, complements this case. The Retailing in India case describes the efforts of retailers like Wal-Mart, Tesco and Carrefour to explore opportunities to move into retailing in India through development of hypermarkets. The case describes economic growth and developments in the Indian retail marketplace, as well as changes in the behaviors of Indian consumers that have combined to create a very attractive potential opportunity for global retailers. The case describes both the opportunities presented for development of the hypermarket format, as well as the competitive challenges which these hypermarkets will likely create in the traditional retail markets in India.

CASE 12: The Competitive Environment in the 18- to 22-Year-Old Apparel Market

Synopsis: American Eagle and Abercrombie & Fitch are rival retailers vying for a competitive leadership position among the same segment of the teenage/college student market. Each, however, pursues a slightly different strategy, even though some similarities have raised legal questions. The case details the strategies, merchandising, operations, and competitive positions of the two retailers. This case provides an opportunity to examine and compare the strategies of two competing retailers.

CASE 26 – Discount Dining Draws a Crowd: Restaurant Weeks in Major Cities

Synopsis: This case describes the growing popularity of Restaurant Weeks in major cities. During these weeks, anywhere from 60 to 200 restaurants take part in the promotions by offering

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special deals to consumers during certain days and times during the event. The case illustrates this unique trend in food retailing, as well as the promotional strategies participating retailers and cities use to get the word out about these special events.

CASE 38: Interviewing for a Management Trainee Position

Synopsis: Students are asked to participate in a variety of professional development steps in the context of a retail management trainee position, including evaluating resumes, preparing his or her own resume and role-playing an interview. The case illustrates important elements of the interview process for retail management trainees. Use with Appendix 1A.

Ancillary Case A2: Value Retailers: Dollar General and Family Dollar Cater to an Underserved Market Segment

Synopsis: Dollar General and Family Dollar are exemplars of the retail category known as extreme value retailers. The case describes the target market, location, merchandising, buying and operations strategies of extreme value retailers and also identifies some trends.

Ancillary Case A8: The Gap and Old Navy

Synopsis: The Gap is a multinational apparel manufacturing and retailing conglomerate. In an effort to expand and diversify its appeal, the company has in recent years opened up Old Navy, and Banana Republic. All of the company’s stores have customers of their own, but they all compete with one another to some extent. This case provides a general overview of retail strategy and includes discussion of strategy concepts including merchandise and service offering, target market and store design.

Ancillary Case A9: Blue Sky Surf Shop – Twenty-One Years of Surfing and Still Going Strong

Synopsis: Blue Sky Surf Shop is a highly successful specialty store that caters to surfing enthusiasts. The store, which has been in business for over two decades, draws most of its business from its loyal customers and word of mouth referrals. This case provides a general overview of retail strategy and includes a discussion of strategy concepts including merchandise and service offering, target market and store design.

Ancillary Case A10: Cleveland Clinic

Synopsis: The Cleveland Clinic is a well-respected health care provider facing a changing competitive environment. In response to this changing environment, Cleveland Clinic is opening facilities in South Florida. It illustrates the parallels between health care (services) retailing and the more traditional in-store retailing formats. This case provides an overview of the retail strategy used by a service retailer.

Ancillary Case A11: Niketown

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Synopsis: Nike, the manufacturer of the leading brand of athletic shoes, has opened retail outlets to showcase their products. These outlets have a unique and highly entertaining store environment. It illustrates an innovative retailing approach that emphasizes store design and layout to entertain customer while they buy merchandise. The Niketown case illustrates an innovative retailing approach that emphasizes store design and layout to entertain customer while they buy merchandise.

Ancillary Case A13: Marquette Army/Navy Surplus Store

Synopsis: Army/Navy Surplus store is considering various new strategic directions. The store was originally a typical military surplus store with a large assortment of military clothing. Items included used uniforms, canteens, and helmets as well as new merchandise. As

the store grew, it added a department carrying trendy clothing for female teenagers. The store is facing several problems with its current retail strategy including

promotions and pricing. This case should generate discussion based on retail strategy evaluation and implementation.

VIDEO SEGMENTS

Video Segment 1: The History of Wal-Mart

Teaching Use: Entrepreneurship in retailing – How Sam Walton started the business

Summary:

This video follows the remarkable growth of Wal-Mart, from the grand opening of Walton's 5 & 10 in the early 1950s to today. Wal-Mart is the largest retail merchant in the world. This segment discusses the history of the firm up to the present. Sam Walton started his retailing career by opening a Ben Franklin franchised variety store in a small town in Arkansas. Then he attempted to convince Ben Franklin to allow him to sell his merchandise at lower prices so he could open discount stores in small rural communities. When Ben Franklin decided not to support his concept, Walton proceeded on his own to open his first discount store in 1960 in Rodgers, Arkansas. This store, store #1, is still open.

The video then traces the evolution of Wal-Mart – national expansion of general merchandise discount stores, the launching of Sam’s Club warehouse clubs, and international expansion. The video stresses the importance Wal-Mart places on people, both customers and employees.

Video Segment 2: Retail Revolution in India

Teaching Use: Introduction to the World of Retailing

This video can be used alone or in conjunction with Case 8: “Retailing in India: The Impact of Hypermarkets,” located in Section V of the textbook.

Summary:The economy in India is growing by 8% a year, its stock market rose by nearly 40% in 2005 and foreign investors are flooding in. It is estimated that 70 million Indians in a population of about 1 billion now

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earn a salary of $18,000 a year, a figure that is set to rise to 140 million by 2011. Many of these people are looking for more choices in where to spend their new-found wealth.

Indian retail is heavily underdeveloped and over 95% of the market is made up of small, family-run stores. There are signs that the Indian government is dropping its traditionally protectionist stance toward these nine million small grocery shops and opening up its retail market to greater overseas investment. This policy change means that, chains like McDonalds, Marks & Spencer, Body Shop and Ikea can, if they want to, open and control their own operations in India.

The Indian government has been conducting an impact analysis of how the introduction of supermarket chains like Tesco and Carrefour would affect its retail sector. The government is trying to find a model that doesn't displace existing retailers. Politicians still feel they have a duty to protect the small shopkeepers they represent. Leaders realize that foreign investment is badly needed to provide the infrastructure to upgrade India's retail industry. An estimated 50% of the country's fruit and vegetables rot by the roadside before they reach market.

Source: Poston, Toby. Countdown to India's retail revolution. BBC News - Online, February 8, 2006, http://news.bbc.co.uk/2/hi/business/4662642.stm.

Video Segment 3: Staples’ Retail Mix

Teaching Use: Introduction to the World of Retailing

Summary: Staples is a category specialist in for office supply merchandise. Its retail mix I includes merchandise (80% national brands and 20% of its own brand); locations (high traffic areas) and store design (popular products in the front of the store to make it easy to shop for products). It offers its customers the opportunity to shop for merchandise through multiple channels – store, Internet, and catalogs.

Video Segment 5: Rainforest Café; A Themed Restaurant Chain

Teaching Use: Innovative, new retail concepts. Illustration of use of entertainment in retailing.

This video can be used alone or in conjunction with Case 1: “Rain Forest Cafe,” located in Section V of the textbook.

Summary:

Rainforest Cafe is a theme restaurant in which the customers are seated in a tropical rainforest environment. The video shows the unique design of the restaurant, the types of food served, and the merchandise sold in the restaurant. The use of proprietary animal figures on the merchandise and in the restaurant design is discussed.

In December 2000, Rainforest Café was purchased from the founders by Landry’s Seafood Restaurants. At the time, Rainforest Café was experiencing some financial problems due to over expansion. The growth strategy of Rainforest Café focused the development of Rainforest Café restaurants in both high-profile concentrated tourist areas, and in enclosed shopping mall locations. Most of the mall locations had high initial revenues that was followed by prolonged revenue declines. (The repeat business was not

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high.) While these mall locations generate revenues significantly greater than typical casual dining restaurants, they also had higher operating costs. This video complements Case 1 in the textbook.

Video Segment 6: Build-A-Bear: Experiential Retailing

Teaching Use: Innovative, new retail concepts. Illustration of use of entertainment in retailing

This video can be used alone or in conjunction with Case 2: “Build a Bear Workshop,” located in Section V of the textbook.

Summary:

Build-A-Bear Workshop is a national mall-based specialty store retailer with over 100 locations in the U.S. The stores target children and sell store stuffed animals. The unique aspect of the firm’s retail offering is that children can create their own unique animals and clothes them. The video discusses the critical issues such as employee training and human resource management for a retailer that provide a high level of customer service.

Video Segment 30: Starbucks – Fair Trade Relationships with Coffee FarmersTeaching Use: Ethics and Corporate Social Responsibility

This video can be used alone or in conjunction with Case 35 - Starbucks in Section V of the textbook.

Summary:

The video documents Starbucks’ approach to working with their coffee growers to guarantee the future availability of coffee beans at prices that are economically viable for the growers. Starbucks’ need for specialty Arabica beans in The Coffee Belt, between the Tropic of Cancer and the Tropic of Capricorn, at high elevations represents a very narrow product market. At the time the video was made, Starbucks 6500+ outlets represented 16% of the specialty coffee market but specialty coffee represented only 10% of world coffee bean production.

Their long-term commitment to their growers extends far beyond the price paid per pound. They are negotiating longer-term contracts to guarantee both the availability of product and future revenue for the growers to enable them to make secure capital investments into their farms. In addition, Starbucks is partnering with 3rd party financing agencies to extend credit to growers to enable them to pay their pickers in advance, prior to receiving payment for their coffee crop.

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ANNOTATED OUTLINE INSTRUCTOR’S NOTES

I. The World of Retailing

Retailing is evolving into a global, high-tech business.

When today’s consumer makes a purchase in their local store, that purchase is often made possible through the use of sophisticated communications and information systems. The use of new technologies helps retailers reduce their operations costs, while better serving their customers.

Retail managers today must make complex decisions on selecting target markets and retail locations, determining what merchandise and services to offer, negotiating with suppliers and distributing merchandise to stores, training and motivating sales associates, and deciding how to price, promote and present merchandise.

Ask students about where they bought their textbook for the course. One will likely get a mix of responses, including the college bookstore or the downtown store, in addition to the Internet or even from another student. Question students on the pros and cons of each type of transaction.

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II. What Is Retailing?

Retailing is the set of business activities that adds value to the products and services sold to consumers for their personal or family use.

See PPT 1-5, 1-6

Ask students to give examples of retailers. One ice-breaking activity is to ask each student to list as many retailers as they can think of in a specified period of time. Ask the student with the most listed retailers to read his or her list to the class.

Generally, the student will think of traditional retailers that sell through stores. By the definition we propose here, many retailers do not sell through stores and/or sell services rather than merchandise. Be sure to discuss the many other examples such as Quizno’s, QVC, Avon, Jiffy Lube, Pizza Hut, and airlines.

Certainly students should be encouraged to consider Internet retailers and multi-channel retailers like Amazon.com or Barnes and Noble and BN.com.

As part of your discussion you may also wish to include universities and colleges. These organizations sell some services to end users and thus are retailers, but they also sell some services to businesses and thus are channel members, but not retailers.

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A. A Retailer's Role in a Supply Chain

Retailers are the final business in a supply chain that links manufacturers with consumers. A supply chain is a set of firms that make and deliver a given set of goods and services to the ultimate consumer.

Manufacturers make products and sell them to retailers or wholesalers. Wholesalers engage in buying, taking title to, often storing, and physically handling goods in large quantities, then reselling the goods (usually in smaller quantities) to retailers or industrial or business users.

Some retail chains are both retailers and wholesalers. They’re performing retailing activities when they sell to consumers and wholesaling activities when they sell to other businesses like building contractors or restaurant owners.

In some supply chains, manufacturing, wholesaling, and retailing activities are performed by independent firms.

But most supply chains have some vertical integration. Vertical integration means that a firm performs more than one level of activity in the channel. For example, most large retailers--such as Safeway, Wal-Mart, and Office Depot --do both wholesaling and retailing activities

Backward integration occurs when a retailer performs some distribution and manufacturing activities, such as operating warehouses and/or designing private label merchandise. Forward integration occurs when a manufacturer undertakes its own retailing activities, such as Ralph Lauren opening its own retail stores.

See PPT 1-7, 1-8, 1-10

A typical supply chain network is illustrated in PPT 1-9

Discuss how, in some channels, consumers can perform some of the functions performed by retailers, wholesalers, and manufacturers in other channels.

For example, assembling furniture or toys is a function frequently performed by manufacturers (providing services). Consumers who buy through discount stores have to discover information about products on their own. When buying at warehouse stores, consumers might buy in large quantities and repackage the food into smaller packages (breaking bulk and holding inventory.)

Discuss the advantages and disadvantages of vertical integration. See PPT 1-11 for examples of types of vertical integration.

Why is Victoria’s Secret vertically integrated while the local department store is not?

Advantages:

Develop unique merchandise only sold in your stores.

Better coordination between manufacturing and retailing.

Disadvantages:

Higher costs because retailer might not be an efficient manufacturer.

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B. Retailers Create Value

Retailers undertake business activities and perform functions that increase the value of the products and services they sell to consumers.

These functions are:

PPT 1-12, 1-13, 1-14 illustrate the value question for retailers. See PPT 1-15, 1-16 for an example of the value added by retailers in the music industry.

Note that retailers and distributors account for a lot of the cost of a product. A retailer's markup of 50% adds half of the cost in making and getting the product to the consumer.

Students could be given a hypothetical issue to debate: Suppose the local grocery store markups all its products by about 50%? Is the grocery store profitable?

Some students may confuse the markup of 50% with profits. The various functions performed by retailers as noted below would help students understand the costs borne by retailers.

As an aside, standard industry average profits for grocery retailing are only in 1-3% range.

See PPT 1-17, 1-18

1. Providing Assortments

Offering an assortment enables customers to choose from a wide selection of brands, designs, sizes, colors, and prices in one location.

All retailers offer assortments of products, but they specialize in the assortments they offer. Supermarkets provide assortments of food, health and beauty care (HBC), and household products; while Abercrombie and Fitch provides assortments of clothing and accessories.

Ask students to describe the difference in the assortments of bicycles provided by Wal-Mart and the local bike shop. What is the difference in assortment of body lotions and creams provided by Bath and Body Works and Kmart?

2. Breaking Bulk

To reduce transportation costs, manufacturers and wholesalers typically ship cases/cartons of products to retailers.

Retailers then offer the products in smaller quantities tailored to individual consumers’ and households’ consumption patterns.

How many students have made purchases at Sam’s Club/BJ’s/Costco? What items have the students or family members purchased in bulk? Discuss the advantages of buying in bulk. For what purchases and what types of consumers does buying in bulk make sense?

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3. Holding Inventory

A major function of retailers is to keep inventory so that products will be available when consumers want them, reducing the consumer’s cost of storing products.

Discuss product categories for which holding inventory is particularly appealing (e.g., holiday decorations, seasonal gear).

See PPT 1-19 for an example here

4. Providing Services

Retailers provide services such as credit, product displays, and sales staff to make it easier for customers to compare, buy and use products.

Ask the students what kind of services retailers provide. Some services are: acceptance of credit cards, alteration of merchandise, assembly of merchandise, bridal registry, check cashing, child-care facilities, credit, delivery to home, demonstrations of merchandise, displaying merchandise, dressing rooms, gift wrapping, lay-away plans, parking, personal assistance in selecting merchandise, personal shoppers, play areas for children, presentations on how to use merchandise, provisions for customers with special needs (wheelchairs, translators), repair services, rest rooms, special orders and warranties.

Which of these services do students believe offer the greatest value to the consumer? Do their opinions differ for different retailers?

5. Increasing the value of products and services.

By providing assortments, breaking bulk, holding inventory, and providing services, retailers increase the value consumers receive from their products and services.

Ask students how a computer retail store can increase the value of a computer for a consumer. Compare the service of a computer store with an on-line store like Dell.

III. Social and Economic Significance Of Retailing

See PPT 1-20

A. Social Responsibility

Retailers are socially responsible businesses. Corporate social responsibility describes the voluntary actions taken by a company to address the ethical, social and environmental impacts of its business operations and the concerns of its stakeholders.

Ask students which retailers are actively engaged in CSR.

See PPT 1-21 for examples of retailers engaging in CSR

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B. Retail Sales

U.S. retail sales in 2005 were $4.1 trillion. However, official statistics include only store and catalog sales; they don't include the retail sales of automobiles and repairs.

Although the majority of retail sales take place in large retail chains, most retailers are small businesses. In fact, 95% of the 1.9 million retail firms in the U.S. operate only one store.

Discuss what type of changes in the retail industry may take place in the 21st century. How is technology affecting the changes in this industry? Will consumers still go to stores or will they buy everything from a computer in their houses? What will stores look like? How will they adjust to the Internet? Who will be the big winners/losers?

C. Employment

Retailing is one of the nation's largest industries in terms of employment. In 2005, over 24 million people were employed in retailing, approximately 18% of the nonagricultural U.S. workforce.

How many students in the class have worked in retail? Talk about the variety of retail jobs available to college students.

D. Top 20 Global Retailers

Retailing is becoming a global industry as more retailers pursue growth by expanding their operations to other countries.

Large retailers in particular are becoming increasingly international in geographic scope.

Exhibit 1-3 lists the 20 largest global retailers.

The exhibit includes companies that compete on the basis of price (such as Wal-Mart), firms that are known for specific categories (such as Safeway for groceries and CVS for drugs), and firms that sell a wide variety of merchandise through different retail formats (such as Target).

The 20 largest retailers account for about 35% of the world market. Of the top global retailers, 36% are headquartered in the U.S., 36% in Europe and 14% in Japan.

See PPT 1-22

Are students surprised by any companies on the list? Why or why not?

Ask what companies will be in the top 5 in 5 years.

Why?

Discuss how some companies are doing a good job of dealing with changing customer needs and others are not.

What global retailers have students experienced while traveling abroad? How do these experiences compare to the students’ experiences in the local marketplace?

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E. Structure of Retailing and Distribution Channels Around the World

Compared with distribution channels in the European Union, China and India, the US distribution system has the greatest retail density with the greatest concentration of large retail firms. The combination of large stores and large firms results in a very efficient distribution system.

The Chinese and Indian distribution systems are characterized by small stores operated by relatively small firms and a large, independent wholesale industry. As a result, a larger percentage of labor is employed in distribution and retailing than in the US.

Northern European retailing is most similar to the US system. Southern European retailing is more fragmented across all sectors. Central European retailing has changed from a highly concentrated structure to one of extreme fragmentation (involving small family owned stores).

Factors that have created differences in distribution systems include: (1) social and political objectives, (2) geography, and (3) market size.

PPT 1-23, 1-24, 1-25 illustrate these different distribution channels

Ask students to consider several reasons for differences in distribution systems in various nations.

How do differences in distribution systems lead to differences in retail experiences for consumers?

IV. Opportunities in Retailing

A. Management Opportunities

Retailers employ people with expertise and interest in finance, accounting, human resource management, logistics, computer systems, and marketing.

A typical buyer in a department store earns $50,000 to $60,000 per year. Store managers often make over $100,000.

See PPT 1-26, 1-27, 1-28, 1-29 for more information and examples of opportunities in the retailing field

Ask students what they think of retailing as a career. If there are many opportunities and they seem to pay well, why do most students think that retailing is not a good job to get after graduation?

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B. Entrepreneurial Opportunities

Retailing provides opportunities for people wishing to start their own business. Many retail entrepreneurs are among the wealthiest people in the United States.

The successes of Jeff Bezos (Amazon.com), Anita Roddick (The Body Shop), Ingvar Kamprad (IKEA) and (Sam Walton (Wal-Mart) show how each capitalized on entrepreneurial opportunities.

Examples of entrepreneurs in retail are shown in PPT 1-30, 1-31

What are some ideas that a retail entrepreneur might consider now near the campus or in the students’ hometowns?

V. The Retail Management Decision Process

The book is organized around the management decisions retailers make to provide value to their customers and develop an advantage over their competitors.

Use this to discuss the organization of the course and the book

A. Understanding the World of Retailing (Section I)

Retail managers need a good understanding of their environment, especially their customers and competition, before they can develop and implement effective strategies.

The critical environmental factors in the world of retailing are: (1) the macroenvironment, and (2) the microenvironment. The impact of the macroenvironment includes technological, social and ethical/legal/political factors on retailing. The retailer’s microenvironment includes the retailer’s competitors and customers.

See PPT 1-32 for the Retail Management Decision Process

Ask students about some changes occurring in the environment now that will affect retailing in general and specific retailers. Corporate Social Responsibility may come up as an answer and the impacts of CSR on the practice of retailing could be discussed in detail.

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1. Competitors

A retailer’s primary competitors are those with the same format. Thus, department stores compete against other department stores and supermarkets compete with other supermarkets. This competition between retailers with the same format is called intratype competition.

To appeal to a broader group of consumers and provide one-stop shopping, many retailers are increasing their variety of merchandise. Variety is the number of different merchandise categories within a store or department. The offering of merchandise not typically associated with the store type, such as clothing in a drug store, is called scrambled merchandising.

Competition between retailers that sell similar merchandise using different formats, such as discount and department stores, is called intertype competition.

Increasing intertype competition has made it harder for retailers to identify and monitor their competition. In one sense, all retailers compete against each other for the dollars consumers spend buying goods and services.

Since convenience of location is important in store choice, a store’s proximity to competitors is a critical factor in identifying competition.

Management’s view of competition also can differ, depending on the manager’s position within the retail firm.

The CEO of a retail chain may view competition from a much broader geographic perspective as compared to a specific store's manager or a departmental sales manager within the store.

In going through this section, you might pick a specific local retailer. Ask students to identify the retailer’s customers, intratype competitors, intertype competitors, and environmental trends affecting the retailer.

See PPT 1-34 for examples

Ask students to give an example of intratype competition – local department store competing against another department store in the same mall

Ask students to compare the different types of merchandise offered at Wal-Mart to those offered at, say, Bath and Body Works or McDonald's.

Ask students to give an example of intertype competition – drug store and discount store that sell the same brand of cosmetics.

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2. Customers

Retailers are responding to broad demographic and life-style trends in our society, such as the growth in the elderly and minority segments of the U.S. population and the importance of shopping convenience to the rising number of two-income families.

To develop and implement an effective strategy, retailers need to know why customers shop, how they select a store, and how they select among that store’s merchandise.

Query students on the specific impacts of an aging population or dual-income households on retailing, including retail location, store layout, etc. What needs for specific types of merchandise and services do these markets create?

B. Developing a Retail Strategy (Section II)

Understanding of the macro- and microenvironments is needed to formulate and implement a retail strategy.

The retail strategy indicates how the firm plans to focus its resources to accomplish its objectives. The retail strategy identifies: (1) the target market, (2) the nature of merchandise and services to be offered, and (3) how the retailer will build a long-term advantage over competitors.

See PPT 1-35

How can one retailer gain long-term competitive advantage over competitors in the marketplace? (Potential areas for discussion may include: location, customer relationships, technology, merchandising, etc.)

Strategic Decision Areas

Key strategic decision areas include the determination of market strategy, financial strategy, location strategy, organizational structure and human resource strategy, information systems and supply chain strategies, and customer relationship management (CRM) strategies.

When major environmental changes occur, the current strategy and the reasoning behind it are reexamined. The retailer then decides what, if any, strategy changes are needed to take advantage of new opportunities or avoid new threats in the environment.

The retailer’s market strategy must be consistent with the firm’s financial

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objectives. Location decisions are important for both consumer and competitive reasons. A retailer’s organizational design and human resource management strategies are intimately related to its market strategy. Retail information and supply chain management systems will be significant opportunities for retailers to gain strategic advantage in the coming decade.

Basic to any strategy is understanding the customer so as to provide them with the goods and services they want. Customer Relationship Management (CRM) is a business philosophy and set of strategies, programs, and systems that focus on identifying and building loyalty with the firm's most valued customers.

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2. JCPenney Moves from Main Street to the Mall.

In the late 1950s, Penney was one of the most profitable national retailers. Its target market was small towns. In its Main Street locations, Penney sold staple soft goods at low prices with minimal service. All sales were cash; the company didn't offer credit to its customers.

Organization structure was decentralized.

In spite of its success, there was a growing awareness among company executives that macroenvironmental trends would have a negative impact on the firm.

In the early 1960s, Penney undertook a new strategic direction that was consistent with changes it saw in the environment.

All new Penney stores were located in regional malls across the United States. Penney opened several mall locations in each metropolitan area to create significant presence in each market.

To effectively control its 1,500 stores, Penney installed a sophisticated communication network.

Penney launched its catalog operations and has recently moved aggressively into selling merchandise over the Internet (www.jcpenney.com). The firm's multi-channel strategy has been very successful, with the average customer that shops across all its channels – stores, catalogs, and the Internet – spending four times more than the firm's average single channel customer.

To compete effectively with the retailers targeting Penney’s middle-income customers, the company has made some radical changes in how it operates, its organizational structure, and where it locates its stores.

See PPT 1-36, 1-37 to review the strategic evolution of JCPenney.

Also see PPT 1-38 and 1-39 for similar evolutions of Wal-Mart and Sears, respectively.

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C. Implementing the Retail Strategy (Sections III and IV)

To implement the retail strategy, management develops a retail mix that satisfies the needs of its target market better than its competitors.

Elements in the retail mix include the types of merchandise and services offered, merchandise pricing, advertising and promotional programs, store design, merchandise display, assistance to customers provided by salespeople, and convenience of the store’s location.

See PPT 1-41 for Key Decision Variables for Retailers

Ask students what McDonald’s needs to do to implement its strategy effectively. Have them discuss each of the elements of the retail mix used by McDonalds. Compare the retail mix elements used by McDonalds to the retail mix elements used by an upscale restaurant in town. Why the retail are mixes of these two types of restaurants different? – [They have different target markets with different needs.]

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1. Whole Foods Market: An Organic and Natural Food Supermarket Chain

When John Mackey, founder and CEO of Whole Foods Market, found that textbooks weren’t going to provide the answers he was looking for, he dropped out of college, lived in a vegetarian housing co-op, and worked in an Austin natural food store.

After he opened his own health-food store and restaurant, he teamed up with a local organic grocer to open the first Whole Foods, which was an instant success.

Whole Foods stores, at 25,000 to 60,000 square feet, are much larger and carry a much broader assortment than the typical natural and organic grocery store.

The stores offer vegetarians as well as health-conscious nonvegetarians a one-stop shopping experience.

The flower power of the 60’s is reflected in Mackey’s guiding management principles – love, trust, and employee empowerment.

Mackey also has an old fashioned competitive drive to dominate Whole Foods’ segment of the supermarket industry.

Whole Foods’ latest venture is the opening of new, exciting 50,000 square foot versions of its stores pioneering a new lifestyle concept that synthesizes health and pleasure.

See PPT 1-40

Ask students what Whole Foods needs to do to implement its strategy effectively. Have them discuss each of the elements of the retail mix used by Whole Foods. Compare the retail mix elements used by Whole Foods to the retail mix elements used by a traditional supermarket in town. Why are the retail mixes of these two types of food retailers different? – [They have different target markets with different needs.]

Additional Chapter 1 PPTs illustrate the retail mixes of several well known retailers. Use these illustrations to guide discussion on various strategic choices for different types of retailers.

See:

PPT 1-42 through 1-48 Wal-Mart’s Retail Mix

PPT 1-49 through 1-55 Claire’s Retail Mix

PPT 1-56 through 1-62 Macy’s Retail Mix

PPT 1-63 through 1-69 Target’s Retail Mix

VI. Ethical and Legal Considerations

Retail managers need to consider the ethical and legal implications of their decisions in addition to the effects those decisions have on the profitability of their firms and the satisfaction of their customers.

Ask students who have worked for retailers whether the firm had a code of ethics. What were some common elements of those codes?

See PPT 1-70, 1-71, 1-72 for a review of ethical decision making situations and ethical decision strategies.

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Ethics are the principles governing the behavior of individuals and companies to establish appropriate behavior and indicate what is right and wrong.

Determining appropriate ethical principles is a difficult task. Ethical principles can vary from country to country and can also change over time.

Many companies have developed codes of ethics to provide guidelines for their employees.

Discuss recent news articles relating to retailers and legal/ethical issues.

VII. Summary

Retailing provides considerable value to consumers while giving people opportunities for rewarding and challenging careers.

The key to successful retailing is offering the right product, at the right price, in the right place, at the right time, and making a profit. To accomplish this, retailers must understand what customers want and what competitors are offering.

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VIII. Appendix 1A: Careers in Retailing

Retailing offers exciting and challenging career opportunities. Few other industries grant as many responsibilities to young managers.

Retailing offers a variety of career paths such as buying, store management, sales promotion and advertising, personnel, operations/distribution, loss prevention, and finance in several different corporate forms such as department stores, specialty stores, food stores, and discount stores.

In addition, retailing offers almost immediate accountability for talented people to reach key management positions within a decade. Starting salaries are competitive, and the compensation of top management ranks among the highest in any industry.

See PPT 1-74, 1-75,and 1-76

A. Career Opportunities

Career opportunities in retail firms occur in merchandising/buying, store management, and corporate staff functions.

Primary entry-level opportunities for a retailing career are in the areas of buying and store management. Buying positions are more numbers oriented, whereas store management positions are more people oriented.

1. Store Management

Successful store managers must have the ability to lead and motivate employees. Store management involves all the disciplines necessary to run a successful business: sales planning and goal setting, overall store image and merchandise presentation, budgets and expense control, customer service and sales supervision, personnel administration and development, and community relations.

2. Merchandise Management

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Merchandise management attracts people with strong analytical capabilities, an ability to predict what merchandise will appeal to their target markets, and a skill to negotiate with vendors as well as store management to get things done. Many retailers break the merchandise/buying function into two career paths: buying and merchandise planning.

3. Corporate Staff

Corporate staff opportunities include positions in MIS, operations/distribution, promotions/advertising, loss prevention, finance/control, real estate, store design, and human resource management.

Career opportunities for corporate staff positions are more difficult to break into.

B. Myths About Retailing

1. Sales Clerk Is the Entry-Level Job in Retailing

2. College and University Degrees Are Not Needed to Succeed in Retailing

3. Retail Jobs Are Low Paying

4. Retailing Is a Low Growth Industry with Little Opportunity for Advancement

5. Working in Retailing Requires Long Hours and Frequent Relocation

6. Retailing Doesn’t Provide Opportunities for Women and Minorities

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ANSWERS TO SELECTED “GET OUT AND DO ITS”

INTERNET EXERCISE Data on U.S. retail sales are available at the U.S. Bureau of the Census Internet site at http://www.census.gov/mrts/www/mrts.html. Look at the unadjusted monthly sales by type of retailer. In which quarter are sales the highest? Which types of retailers have their greatest sales in the fourth quarter?

(in $ millions) US unadjusted retail sales for 2007, for all retail and food service businesses were 4,482,668. For these businesses overall, sales were highest in the 4th quarter. Sales for the October-December 2007 quarter were 1,183,792.

(in $ millions) Many types of US retailers posted their highest sales in the 4th quarter of 2007 including Home Furnishings Retailers (15,869), Electronics and Appliances Retailers (34,764), and Jewelry Stores (11,443). In fact, Jewelry Stores posted sales for the month of December alone at 37% of their total sales for all 2007!

INTERNET EXERCISE Go to the Macy’s (http://www.macysjobs.com/college), Sears Holdings (http://www.searsholdings.com/careers/college/aboutus/people.htm), and National Retail Federation (http://www.nrf.com/RetailCareers/) web sites to find information about retail careers with these companies. Review the information about the different positions in these companies. In which positions would you be interested? Which positions are not of interest to you? Which company would interest you? Why?

Students’ answers will vary considerably here. Some students may take a more long-term view looking to Buyer or Planner positions which call for a variety of skills including strong organizational and analytical skills, excellent verbal and written communication skills and extensive PC experience. These positions also require several years of prior experience in lower-level buying positions. Other students may find these positions to be more quantitative or analytical than their interests lie.

Students looking at entry-level positions, as well as those seeking more creative positions or those with a broader focus may be attracted to the entry-level Fashion Assistant or Product Assistant positions. These positions request a less comprehensive skill set as well as less emphasis on prior job experience.

ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS

1. What is your favorite retailer? Why do you like this retailer? What would a competitive retailer have to do to get your patronage?

Students may choose an example from a wide variety of retailers. Answers will likely range from national chains including but not limited to K-Mart, The Gap, Bloomingdale's, McDonald's, The Sports Authority, Starbucks, JC Penney, to online retailers like Amazon.com and eBay to favorite local shops and hangouts.

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Whatever selection is made, ask students to concentrate on the specific aspects of retail strategy, such as: (1) intended target market of the retailer; (2) nature of merchandise and services and the specific consumer needs sought to be satisfied; (3) product variety and assortments carried; (4) store location strategy; (5) pricing strategies; (6) specific service strategies; (7) strategies designed to attract and retain customers; and, (8) strategies specifically designed at gaining a long-term advantage over competitors.

2. From your perspective, what are the benefits and limitations of purchasing a pair of jeans directly from a manufacturer rather than a retailer?

Students may indicate benefits typically associated with “removing the middleman” such as reduced price and effort in completing the transaction.

While these benefits will occur in specific cases, such as a one-time purchase of jeans from a specific designer, it must be noted that the average consumer engages in buying dozens of items on a regular basis. Even if all manufacturers were to offer their products directly to consumers, it can be readily noted that the consumer would now have to spend an extraordinary amount of time each day ordering directly from each manufacturer. This should lead to discussion of the limitations of purchasing directly from the manufacturer rather than a retailer.

Here, the various functions performed by retailers, such as bulk-breaking, holding inventories, and providing information, service and assortments can be brought to bear on overcoming the limitations discussed above for the consumer. Bulk-breaking enables consumers to buy only the specific amount they would need. Retail inventory helps eliminate the need for consumers to hold their own inventory, since they could simply satisfy their needs for a specific and immediate time-period, such as buying one unit of dish washing detergent that would last the next 2 months. Retailers provide valuable information and services that save consumers time and effort as compared to when consumers attempt to obtain such information by themselves or serve themselves. By providing an assortment of products and brands in one location – in some cases of scrambled merchandising, a very wide assortment of products and brands – retailers help consumers engage in one-stop shopping, thereby saving them the time and effort for other productive and leisure activities.

Further, it would be uneconomical for most manufacturers, especially those selling low-priced items, such as toothpaste directly to each consumer or household. In general, even if retailers are eliminated from the supply chain, their functions remain. Often these functions would be distributed between the manufacturer and consumers. For example, manufacturers would now have to produce a wider variety of products (in order to offer an assortment) and consumers would have to carry greater amounts of inventory (to buy a case-load of toothpastes!). The distribution of retail functions would increase manufacturer costs as well as consumer costs and efforts. One may argue that "buying cheaper from the manufacturer" is, in a vast majority of cases, a myth.

3. What retailers would be considered intratype competitors for a convenience store chain such as 7-Eleven? What firms would be intertype competitors?

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Discussion should lead to those convenience stores in the local market offering the traditional convenience store retail mix including gasoline, snacks, newspapers, coffee, and a limited variety of grocery items.

Ask students to discover intertype competitors for 7-Eleven by focusing on a particular merchandise offering such as a gallon of milk, a fountain soda or a candy bar. This discussion will illustrate that intertype competition for 7-Eleven may come from a number of retailers offering similar merchandise through different formats, such as supermarkets, fast food restaurants or discount stores.

4. Does Wal-Mart contribute to or detract from the communities in which it operates its stores?

Students may argue either in favor of or against the large discount stores, such as Wal-Mart. The arguments against may include:(1) smaller family-owned firms may not be able to compete on the basis of price with Wal-Mart and hence would have to close down, resulting in loss of entrepreneurial opportunities within the community;(2) the personal service of a Mom-and-Pop store is now replaced by an impersonal cash register clerk and very few employees offering information and service within the store; and,(3) over a period of time, there may be no competition for the larger store, which may begin to charge higher prices, from a monopoly position.

On the other hand, the arguments in favor include:(1) greater product assortment and choice for the consumer at lower prices;(2) one-stop shopping convenience for the consumer, freeing up the consumer's time for other productive and leisure activities;(3) immediate increase in employment at various levels of the local, large store organization; and,(4) greater opportunities at the supply level, since the large store would have to rely on local supply sources for a variety of products, especially perishables.

In general, students would see both the arguments for and against the large store. However, one could also add that smaller firms providing superior service or other forms of consumer value apart from price would prevail despite the presence of a large store competing on the basis of price. Examples include electronics stores that provide greater consumer information and expertise, or customized services such as portrait framing, etc. Given that modern retailing has seen several different types of retailers emerge and compete successfully, it is debatable if the large store would ever actually become a monopoly. As long as some consumers continue to seek a wide variety of retail offerings beyond price, other retailers or retail formats will emerge to challenge the growing monopolization by the larger store.

5. Choose a U.S.-based retailer that wants to open a new store outside the United States for the first time. Which country should it pursue? Why?

Students may point out global retail expansions they are aware of here. This could include Wal-Mart or Home Depot’s expansions to other countries. They should consider differences in retailing practices and distribution channels in various countries in selecting the most appropriate match for their retail store of choice, such as supply chains, availability of land and restrictions to be considered for new stores, as well as consumer buying and shopping habits.

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6. Why do retail managers need to consider ethical issues in making decisions?

As do all managers in today’s business world, retail managers must consider the ethical implications of the decisions that they make. These considerations go steps beyond the legal aspects of a situation to determine appropriate behaviors and the choice between right and wrong courses of action. Special consideration must be given to the effects of these decisions on the profitability of the manager’s firm and the welfare of the firm’s customers, employees and communities. Fortunately, many retail firms have developed codes of ethics to provide guidelines for employees in making the ethical decisions they face. These policies provide a clear sense of what the individual firm considers to be right or wrong.

7. Choose one of the top 20 retailers (Exhibit 1-3). Go to the company’s Web site and find out how the company started and how it has changed over time?

From the Exhibit of the Top 20 retailers, students can see that in general, European retailers have been more successful in expanding to more countries as compared to U.S. retailers. In general, given smaller sizes of the countries in which these retailers originated, they had to expand to other country markets to sustain their growth strategies. By contrast, the U.S. retailers have enjoyed a larger market size within the U.S. alone, thereby rendering global expansion less of a priority for them. Students will also note that food retailing dominates among the largest retailers, as 8 of the top 10 sell food products.

8. From a personal perspective how does retailing rate as a potential career compared to others you are considering?

After reading the chapter, some students may already be attracted to retailing as a career, since they would now have realized the wide variety of opportunities provided in the retail sector. At the same time, some may compare retailing less favorably to other potential career paths, such as advertising, or more immediately lucrative endeavors, such as the stock market. Ultimately, all students should have recognized that retailing is not simply being a store associate, greeting the customer and making a sale. Those students interested in the technology field should see a variety of opportunities to make a career in retailing, as should those with interests in finance, accounting or human resource management.

9. How might managers at different levels of a retail organization define their competition?

Perceptions of competition may vary across different levels of a retail organization since retail managers are concerned mainly with their specific scope of activities and responsibilities. Departmental sales managers may be viewing competition primarily at the product level. For example, the men’s clothing department manager at Bloomingdales would try to monitor, analyze and react to the strategies of Lord and Taylor's or a smaller specialized men's clothing store located in the same mall. The store manager's view of competition would be slightly broader, encompassing all product categories within a specific location. For example, the manager of a local McDonald's would view other fast food stores in the neighborhood as competitors, while the store manager at K-Mart would view Wal-Mart and other discount stores in the area as competitors. At the broader chain store headquarter level, the CEO may view as competition as the struggle for dominance of specific regional or national markets. For example,

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in certain areas, Blockbuster may view competition from other video rental chains as intense but in others, may view their competition to be supermarkets renting out videos, movie theaters, regular and cable TV and other forms of entertainment, including ballet and opera.

10. Retailing View 1.1 describes how some retailers are acting socially responsible. Take the perspective of a stockholder in the company. What effect will these activities have on the value of its stock? Why might they have a positive or negative effect?

Stockholders may see both positive and negative effects on stock value resulting from the firm and its employees undertaking socially responsible activities. Positive impacts on value are likely to come from increased loyalty from both customers and employees. Customers in local communities directly aided by the firms’ employees as well as those customers learning about the retailers’ activities through local and national media channels are likely to form favorable impressions of the retailer through learning of its socially responsible actions. These positive impressions may contribute to greater patronage and loyalty to the retailer in return for its generosity and community support.

These retailers may realize positive value through creating employee loyalty as well. In a high turnover industry like retailing, creating a pool of loyal and dedicated employees by investing in their own socially responsible actions appears to be a winning strategy. Awareness of these practices may also give these retailers an edge in recruiting high quality potential employees to the organization.

On the other hand, the stockholder may have concerns about negative impacts on company value. From his or her perspective, the company is in business to make a profit. If the stockholder views the contributions of supplies, employee time, and limitations placed on suppliers as taking away from the bottom-line profitability of the firm, that stockholder may view the retailer’s social responsibility programs to be a negative impact on the value of the firm.

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