Jen Retail Mgnt Pres

8/4/2019 Jen Retail Mgnt Pres.

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CHAPTER I:Introduction to the World of

Retailing THE RETAIL MANAGEMENT

DECISION PROCESS



The success of a small entrepreneurialretailer or a major retail corporation, inmaking these decisions, depends largely onhow much it embraces the retailing concept.The RETAILING CONCEPT is a managerial

orientation that focuses a retailer ondetermining its target market’s needs andsatisfying those needs more effectively andefficiently than its competitors.



The retailing concept emphasizes that high-

performance retailers must be strongcompetitors. They can’t achieve highperformance by simply satisfying customers’needs. They must also keep a close watch to

ensure that competitors don’t attract their customers.



UNDERSTANDING THE

WORLD OF RETAILING – SECTION I

The first step in the retail management decision process is

getting an understanding of the world of retailing. Retailmanagers need a good understanding of theirenvironment, especially their customers and competition,before they can develop and implement effectivestrategies.The critical environmental factors in the world of

retailing are:1. The macroenvironment2. The microenvironment



Ethical standards and legal and public policyare critical macroeconomic factors affectingretail decisions. Strategy development andimplementation must be consistent withcorporate values, legal opinions, and publicpolicies. Federal, state, and local laws are

enacted to ensure that business activities areconsistent with society’s interests. These lawsdefine unfair competitive practices related tosuppliers and customers; regulate advertising,promotion, and pricing practices; and restrict

store locations.



Retailers rely on ethical standards to guide

decision making when confrontingquestionable situations not covered by laws.Buyers may have to decide whether to

accept a supplier’s offer of free tickets to afootball game Some retailers have policiesthat outline correct behavior of employees inthese situations, but in many situations

people must rely on their own code of ethics.



The introductory section on the world of

retailing focuses on the retailer’smicroenvironment – the retailer’s

competitors and customers.

COMPETITORS. At first glance, identifyingcompetitors appears easy. A retailer’sprimary competitors are those with the sameformat. This competition with the same typeof retailers is called intratype competition .



To appeal to a broader group of consumersand provide one-stop shopping, many retailersare increasing their variety of merchandise. Byoffering greater variety in one store, retailers

can offer one-stop shopping to satisfy more ofthe needs of their target market. The offeringof merchandise not typically associated withthe store type is called scrambled

merchandising. Scrambled merchandisingincreases intertype competition – competition between retailers that sell similarmerchandise using different formats.



Increasing intertype competition has made it harder forretailers to identify and monitor their competition.

In one sense, all retailers compete against each other forthe dollars consumers spend buying goods and services.

But the intensity of competition is greatest among retailerslocated close together with retail offerings that are viewedas very similar.

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

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



CUSTOMERS. Customer needs arecontinually changing at an everincreasing rate. Retailers need to

respond to broad demography andlifestyle trends in our society.

To develop and implement an effectivestrategy, retailers also need to know the

information about why customers shop,how they select a store, and how theyselect among that store’s merchandise.



DEVELOPING A RETAILSTRATEGY – SECTION II RETAIL STRATEGY – indicates how the

firm plans to focus its resources toaccomplish its objectives. It identifies :

1. The target market toward which theretailer will direct its efforts;2. The nature of the merchandise andservices the retailer will offer to satisfy

needs of the target market and3. How the retailer will build a long-termadvantage over competitors.



AREAS

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

A retailer’s organization design and human resource management strategy are intimately related to its market strategy.

Retail information and supply chain management systems will offer asignificant opportunity for retailers to gain strategic advantage in thecoming decade.

The key strategic decision areas involve determining a

market strategy, financial strategy, location strategy, organizationalstructure and human resource strategy, and information systemsstrategy and customer relationship management strategies.

When major environmental changes occur, the current strategy andthe reasoning behind it are reexamined. The retailer then decides what, ifany, strategy changes are needed to take advantage of new opportunitiesor avoid new threat in the environment.



IMPLEMENTING THE RETAILSTRATEGY – SECTIONS IIIAND IV

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- To implement a retail strategy, managementdevelops a retail mix that satisfies the needs of itstarget market better than its competitors. The retailmix is the combination of factors retailers use tosatisfy customer needs and influence theirpurchase decisions.

- Elements in the retail mix include: o The types of merchandise and services offeredo Merchandise pricingo Advertising and promotional programso Store designo Merchandise displayo Assistance to customers provided by salespeopleo Convenience of the store’s location



Chapter 2:

Types of Retailers



Types of Merchandise:

• North American Industry Classification System (NAICCS): TheUnited States, Canada, and Mexico have developed a classificationscheme, called the North American Industry Classification System,

to collect data on business activity in each country. Every businessis assigned a hierarchical, six-digit code based on the type ofproducts and services it produces and sells. The first two digitsidentify the firm’s business sector, and the remaining four digitsidentify various sub sectors.

Variety and Assortment:

• Variety: represents the number of merchandise categories aretailer offers.

• Assortment: is the number of different items in a merchandisecategory.

• Variety is often referred to as the breadth of merchandise carried

by a retailer; • Assortment is referred to as the depth of merchandise.

• Each different item of merchandise is called an SKU (stockkeeping unit).



• Warehouse club stores, discount

stores, and toy stores all sell toys.However, warehouse clubs and discount

stores sell many other categories ofmerchandise in addition to toys. Storesspecializing in toys stock more types oftoys.



Service Offered: • Retailers also differ in the services they

offer customers. Customers expect almostall retailers to provide certain services:

displaying merchandise, acceptingcredit cards, providing parking, andbeing open to convenient hours. Someretailers charge customers for otherservices, such as home delivery and giftwrapping. Retailers that cater to service-oriented consumers offer customers mostof these services at no charge.



Prices and the cost of offering breadth and depth ofmerchandise and services:

• Stocking a deep and broad assortment like gatorcycle’s offering bicycles is appealing to customers but costly for

retailers. When a retailer offers customers many SKUs, itsinventory investment increases because the retailer musthave backup stock for each SKU.

• Similarly, services attract customers to the retailer butthey’re also costly. More salespeople are needed to

provide information and assist customers, altermerchandise to meet customer’s needs, and demonstratemerchandise. Child care facilities, restrooms, dressingrooms, and check rooms take up valuable store spacethat could be used to stock and display merchandise.



• To make a profit, retailers that offer broader and deeper assortments andservices need to charge higher prices.



Food Retailers:

Supermarkets: • A Conventional supermarket is a self -serviced food

store offering groceries, meat, and produce withlimited sales of non food items, such as health andbeauty aids and general merchandise.

• Whereas conventional supermarkets carry about30,000 SKUs, Limited assortment supermarkets,also called extreme value food retailers, only stock1,250 SKUs. Rather than carrying twenty brands of

laundry detergent, limited assortment stores offerone or two brands and sizes, one of which is a storebrand. Stores are designed to maximize efficiencyand reduce costs.



Trends in Food Retailing:

• The set of programs supermarketchains have undertaken to achieve this

inventory reduction is called efficientcustomer response (ECR) and includes just-in-time inventory management and

better assortment planning.



• To complete successfully againstintrusions by other food retailing formatsconventional supermarkets aredifferentiating their offering by

• Emphasizing fresh perishables,

• Targeting health-conscious and ethnicconsumers,

• Providing a better in-store experience,and

• Offering more private label brands.



• Fresh merchandise categories, theareas around the outside walls knownas the “power perimeter,” have long

been the mainstays of conventionalsupermarkets. These include the dairy,bakery meats, florist, produce, deli, andcoffee bar departments - high traffic;profitable departments that help pullshoppers through the store.



Supercenters:

• The fastest growing retail category, arelarge stores that combine a supermarket

with a full-line discount store. By offeringbroad assortments of grocery andgeneral merchandise products under

one roof, super centers provide a one-stop shopping experience.



• Hypermarkets: are also large combination foodand general merchandise stores. Hypermarketstypically stock fewer stock than supercenters -between 40,000 and 60,000 items ranging fromgroceries, hardware, and sports equipment to

furniture and appliance to computers and electronics. • Hypermarkets are not common in the United

States, though hypermarkets and supercenters aresimilar. Both hypermarkets and supercenters arelarge, carry grocery and general merchandisecategories, offer self-service, and are located inwarehouse-type structures with large parkingfacilities.



o However, hypermarkets carry a largerproportion of food items thansupercenters with a greater emphasis

placed on perishables – produce, meat,fish, and bakery.

o Supercenters, on the other hand,have a larger percentage of nonfood

items and focus more on dry groceries,such as breakfast cereal and cannedgoods, instead of fresh items



Warehouse Clubs • Warehouse clubs are retailers that offer a limited

and irregular assortment of food and generalmerchandise with little service at low prices forultimate consumers and small businesses.

• Warehouse clubs are large (at least 100,000-150,000 square feet) and typically located in low-rentdistricts. They have simple interiors and concretefloors. Aisles are wide so forklifts can pick up palletsof merchandise and arrange them on the sellingfloor. Little service is offered. Customers pickmerchandise off shipping pallets, take it to checkoutlines in the front of the store, and usually pay withcash.



• Warehouse clubs can offer low pricesbecause they use low-cost locations,inexpensive store designs, and littlecustomer service and keep inventoryholding costs low by carrying a limitedassortment of fast selling items.

• Most warehouse clubs have two types ofmembers: wholesale members who ownsmall businesses and individual members

who purchase for their own use. • Typically, members must pay an annual fee

of $25-45.



Convenience Stores • Convenience stores provide a limited variety

and assortment of merchandise at aconvenient location in 2,000-3,000 square foot

stores with speedy checkout. They are themodern version of the neighborhood mom-andpop grocery/general store. Customers canshop very quickly.

• Due to their small size and high sales,

convenience stores typically receive deliveriesevery day. Convenience stores only offerlimited assortments and variety, and theycharge higher prices than supermarkets.



• In response to competitive pressures,convenience stores are taking steps todecrease their dependency on gasoline

sales, tailoring assortments to localmarkets, and making their stores evenmore convenient to shop.

• To increase convenience, conveniencestores are opening smaller stores closeto where consumers shop and work.



General Merchandise Retailers

The major types of general merchandiseretailers are department stores, full-line

discount stores, specialty stores,category specialists, home improvementcenters, off-price retailers, and extreme

value retailers.



• Department stores are retailers that carry abroad variety and deep assortment, offercustomer services, and organize their storesinto distinctly separate departments fordisplaying merchandise.

• Traditionally, department stores attractedcustomers by offering a pleasing ambience,attentive service, and a wide variety ofmerchandise under one roof.

o They sold both soft goods (apparel andbedding) and hard goods (appliances,furniture, and consumer

electronics).



o But now most department stores focusalmost exclusively on soft goods.

• Department store chains can be categorizedinto three tiers. The first tier includes upscale,

high fashion chains with exclusive designermerchandise and excellent customer service. • The second tier of upscale traditional

department stores, in which retailers sell moremodestly priced

merchandise with less customer service. • The value oriented tier caters to more price-

conscious consumers.



• Retail chains in the first tier have established aclearly differentiated position and are producingstrong financial results, while the value oriented tieris facing significant competitive challenges fromdiscount stores.

• Department stores still account for some of retailing’s traditions – multistoried downtown stores,special events, parades, Santa Claus lands, andholiday decorations – and offer designer brands thatare not available from other retailers.

o Department stores have not been as successful asdiscount stores and food retailers in reducing costsby working with their vendors to establish just-in-timeinventory systems, so prices are relatively high.



• The performance of department stores is linked tothe strengths of the brands they sell.

o In light of the decline in department storepatronage, many of these brands, previously soldexclusively through department stores, are pursuing

other growth opportunities. • To deal with their eroding market share, department

stores are : o Attempting to increase the amount of exclusive

merchandise they sell,

o Undertaking marketing campaigns to developstrong images for their stores and brands, and



o Building better relationships with their keycustomers.

• In recent years, department stores’discount sales events have increased

dramatically to the point that consumershave been trained to wait for items to beplaced on sale rather than buy them at fullprice.

• Finally, department stores are usingtechnology and information systems toimprove customer service in a costeffective manner.



Full-Line Discount Stores • Full-line discount stores are retailers that

offer a broad variety of merchandise, limitedservice, and low prices.

Discount stores offer both private and nationallabel, but these brands are typically lessfashion oriented than the brands in departmentstores.

• Target is becoming one of the most

successful retailers in terms of sales growthand profitability. Target succeeds because itsstores offer fashionable merchandise at lowprices in a pleasant shopping environment.



Specialty Stores • Specialty stores concentrate on a limited

number of complementary merchandisecategories and provide a high level of service

in relatively small stores. • Specialty stores tailor their retail strategytoward a very specific market segment byoffering deep but narrow assortments andsales associate expertise.

• Because specialty retailers focus on specificmarket segments, they are vulnerable to shiftsin consumer tastes and preferences.



Drugstores • Drugstores are specialty stores that

concentrate on health and personal groomingmerchandise.

o Pharmaceuticals often represent over 50percent of drugstore sales and an evengreater percentage of

their profits. • Drugstores, particularly the national chains,

are experiencing sustained sales growthbecause the aging population requires moreprescription drugs.



• Drugstores are also being squeezed byconsiderable competition frompharmacies in discount stores and

supermarkets, as well as fromprescription mail-order retailers.

• Drugstore retailers are using systems

to allow pharmacists time to providepersonalized service.



Category Specialists: Are big box discount stores that offer a

narrow but deep assortment ofmerchandise. These retailers are basically

discount specialty stores. Most categoryspecialists use a self-service approach, butsome specialists in consumer durablesoffer assistance to customers. For,example, office depot stores have a

warehouse atmosphere, with cartons ofcopying paper stacked on pallets plusequipment in boxes on shelves.



• By offering a complete assortment in acategory at low prices, categoryspecialists can “kill” a category of

merchandise for other retailers and thusare frequently called category killers.Due their category dominance, they usetheir buying power to negotiate lowprices and are assured of supply whenitems are scarce.



• One of the largest and most successfultypes of category specialist is the homeimprovement center. A home

improvement center is a categoryspecialist offering equipment andmaterial used by do-it-yourselfers andcontractors to make homeimprovements.



Extreme Value Retailers: Are small, full-line discount stores that offer

a limited merchandise assortment at verylow prices. The largest extreme value

retailers are dollar general and Familydollar stores. Extreme value retailers areone of the fastest growing segments inretailing. Like limited assortment foodretailers, extreme value full-line retailers

reduce costs and maintain low prices byoffering a limited assortment and operatingin low-rent, urban, or rural locations.



Off-Price Retailers Offer an inconsistent assortment of brand name

merchandise at low prices. America’s largest off -price retail chains are TJX companies, Ross Stores,and Burlington Coat Factory. Off-price retailers sell

brand name and even designer label merchandise atlow prices through their unique buying andmerchandising practices. Most merchandise isbought opportunistically from manufacturers or otherretailers with excess inventory at the end of theseason. Due to this pattern of opportunistic buying,

customers can’t be confident that the same type of merchandise will be in stock each time they visit thestore.



• Closeout Retailers: are off-price retailersthat sell a broad but inconsistent assortment ofgeneral merchandise as well as apparel andsoft home goods. The largest closeout chains

are Big Lots Inc. and Tuesday Morning. • Outlet stores are off -price retailers owned by

manufacturers or department or specialty storechains. Those owned by manufacturers are

frequently referred to as Factory Outlets. Outstores are typically found in one of the fastestgrowing types of malls – the outlet mall.



Non Store Retailers

In the preceding sections, we examinedretailers whose primary channel is their

stores. In this section, we will discusstypes of retailers that operate primarilythrough non-store channels.



Electronic Retailers • Electronic Retailing (also called e-tailing, online

retailing, and Internet retailing) is a retail format inwhich the retailers communicate with customers andoffer products and service for sale over the Internet.

• Even though online retail sales continue to growmuch faster than retail sales through stores andcatalogs, we now realize the internet is not arevolutionary new retail format that will replacestores and catalogs. While the Internet continues toprovide opportunities for entrepreneurs in the retailindustry, it is now primarily used by traditionalretailers as a tool to complement their store andcatalog offerings, grow their revenues, and providemore value for their customers.



• Most of the retailers that sell merchandise exclusivelyover the Internet target niche markets – markets that areso small and dispersed that they cannot be economicallyserviced by stores. Catalog and Direct-Mail Retailers

• Catalog retailing is a non-store retail format in which theretail offerings are communicated through a catalog,whereas direct-mail retailers communicate with theircustomers using letters and brochures.

o Historically, catalog and direct-mail retailing were mostsuccessful with rural consumers who lacked

ready access to retail stores.

• In 2003, $125 billion of merchandise and services weresold through catalogs, and over 17 billion catalogs weredistributed in the United States. The merchandisecategories with the greatest catalog sales are apparel,gifts, books, and home décor.



Types of Catalog and Direct Mail Retailers

• General merchandise catalog retailersoffer a broad variety of merchandise incatalogs that are periodically mailed to their

customers. • Specialty catalog retailers focus on specific

categories of merchandise, such as fruit,gardening tools, and seeds and plants.

Direct mail retailers typically mail brochuresand pamphlets to sell a specific product orservice to customers at one point in time.



• Catalog retailing is verychallenging.

o First, it is difficult for smaller catalog

and direct-mail retailers to compete withlarge, well-established firms withsophisticated CRM and fulfillmentsystems.

o Second, the mailing and printing costsare high and increasing.

.



o Third, it is difficult to get customers’attention as they are mailed so manycatalogs and direct mail promotions.

o Fourth, the length of time required todesign, develop, and distribute catalogsmakes it difficult for catalog and direct

mail retailers to respond quickly to newtrends and fashions



Direct Selling • Direct selling is a retail format in which salespeople,

frequently independent businesspeople, contactcustomers directly in a convenient location, either atthe customer’s home or at work; demonstrate

merchandise benefits and/or explain a service; takean order; and deliver the merchandise or perform theservice. Direct selling is a highly interactive form ofretailing in which considerable information isconveyed to customers through face-to facediscussions with salespeople. However, providing

this high level of information, including extensivedemonstrations, is costly.



• Two special types of direct selling arethe party plan and multilevel selling.

o About 30 percent of all direct sales aremade using a party plan system, in which

salespeople encourage customers to actas hosts and invite friends or coworkers toa “party” at which the merchandise isdemonstrated. Sales made at the party areinfluenced by the social relationship of the

people attending with the host or hostess,who receives a gift or commission forarranging the meeting.



Television Home Shopping

• Television home shopping is a retailformat in which customers watch a TV

program that demonstrates merchandise and then place orders for

the merchandise by telephone.



• The three forms of electronic homeshopping retailing are

o Cable channels dedicated to televisionshopping

o Infomercials

o Direct-response advertising

• Direct-response advertising includes

advertisements on TV and radio thatdescribe products and provide anopportunity for consumers to order them.



• Infomercials are TV programs, typically 30 minutes longthat mix entertainment with product demonstrations andthen solicit orders placed by telephone.

• The major advantage of TV home shopping comparedwith catalog retailing is that consumers can see themerchandise demonstrated on their TV screen.

Vending Machine Retailing • Vending machine retailing is a non-store format in which

merchandise or services are stored in a machine anddispensed to customers when they deposit cash or use acredit card. Vending machines are placed at convenience,high-traffic locations, such as in the workplace or onuniversity campuses, and primarily contain snacks anddrinks.



o Due to increasing labor and gasolinecosts, vending machine operators areincreasing their prices andretrofittingmachines to accept higher denomination

bills. • Technological developments in vending

machine design may result in long-termsales growth.

• Some retailers are experimenting withvending machines as another channel toservice their customers.



Service Retailing

• Service retailers firms selling primarilyservices rather than merchandise are a

large and growing part of the retailindustry.

o There are several trends that suggest

considerable future growth in servicesretailing.



• Many organizations such as banks,hospitals, health spas, legal clinics,entertainment firms, and universities thatoffer services to consumers traditionally

haven’t considered themselves retailers.Due to increased competition, theseorganizations are adopting retailingprinciples to attract customers and satisfy

their needs. • All retailers provide goods and services

for their customers.



Differences between Services andMerchandise Retailers

Intangibility • Services are generally intangible –

customers cannot see, touch, or feel them.They are performances or actions ratherthan objects.

• Due to the intangibility of their offering,

service retailers often use tangible symbolsto informcustomers about the quality of their services.



• Services retailers also have difficultyevaluating the quality of services theyare providing.

o To evaluate the quality of their offering,services retailers often solicit customerevaluations and

complaints.



Simultaneous Production andConsumption

• Products are typically made in a

factory, stored and sold by a retailer, andthen consumedby consumers in theirhomes. Services providers, however,create and deliver the service as thecustomer is consuming it.



• The simultaneity of production andconsumption also creates some specialproblems for service retailers.

o First, the customers are present when the serviceis produced, may even have an opportunity to see it

produced, and in some cases may be part of theproduction process, as in making their own salad ata salad bar.

o Second, other customers consuming the service atthe same time can affect the quality of the serviceprovided.

o Third, the service retailer often does not get asecond chance to satisfy the needs of its customers.



• Because services are produced andconsumed at the same time, it is difficultto reduce costs through mass

production. Most service retailers aresmall, local firms.



Perishability • Because the creation and consumption of services

are inseparable, services are perishable. They can’tbe saved, stored, or resold.

o Due to the perishability of services, an important

aspect of services retailing is matching supply anddemand. • Thus, services retailers often have times when their

services are underutilized and other times when theyhave to turn customers away because they can’taccommodate them. Services retailers use a varietyof programs to match demand and supply.

Inconsistency



Inconsistency

• Products can be produced by machines with verytight quality control so customers are reasonablyassured that all boxes of cheerios will be identical.Because services are performances produced bypeople (employees and customers), no two serviceswill be identical.

• Thus, an important challenge for services retailers

is providing consistently high-quality services. Manyfactors that determine service quality are beyond thecontrol of the retailers; however, services retailersexpend considerable time and effort selecting,training, managing, and motivating their serviceproviders.



Types of Ownership

Independent, Single-StoreEstablishments

• Retailing is one of the few sectors in our economy in which entrepreneurial activityis extensive. Many of these retail start-upsare owner managed, which meansmanagement has direct contact withcustomers and can respond quickly to their

needs. Small retailers are also very flexibleand can therefore react quickly to marketchanges and customer needs.



• Whereas single-store retailers can tailortheir offerings to their customers’ needs,corporate chains can more effectivelynegotiate lower prices for merchandise and

advertising due to their larger size. • To better compete against corporatechains, some independent retailers join awholesale-sponsored voluntary cooperativegroup, which is an organization operated

by a wholesaler offering a merchandisingprogram to small, independent retailers ona voluntary basis.



o In addition to buying, warehousing,and distribution, these groups offermembers services such as advice on

store design, and layout, site selection,bookkeeping and inventorymanagement systems, and employeetraining programs.



Corporate Retail Chains

• A retail chain is a company thatoperates multiple retail units under

common ownership and usually hascentralized decision making for definingand implementing its strategy.



Franchising

• Franchising is a contractual agreementbetween a franchisor and a franchisee

that allows the franchisee to operate aretail outlet using a name and formatdeveloped and supported by thefranchisor.



• In a franchise contract, the franchisee pays alump sum plus a royalty on all sales for theright to operate a store in a specific location.The franchisee also agrees to operate theoutlet in accordance with procedures

prescribed by the franchisor. The franchisorprovides assistance in locating and buildingthe store, developing the products or servicessold, training managers, and advertising. Tomaintain each franchisee’s reputation, the

franchisor also makes sure that all outletsprovide the same quality of services andproducts.



• The franchise ownership attempts tocombine the advantage of owner-managedbusinesses with efficiencies of centralizeddecision making of chain store operations.Franchisees are motivated to make theirstore successful because they receive theprofits (after royalty is paid). The franchisoris motivated to develop new products andsystems and to promote the franchise

because it receives a royalty on all sales.Advertising, product development, andsystem development are efficiently done bythe franchisor, with costs shared by allfranchisees

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Jen Retail Mgnt Pres