PPT 2-1

5th Edition5th Edition

PPT 2-2

McGraw-Hill/IrwinLevy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Types of RetailersTypes of Retailers

Chapter 2Chapter 2

PPT 2-3

The World of Retailing

Introduction to Retailing

Types of Retailers

Multi-Channel Retailing

Customer Buying Behavior

PPT 2-4

Trends in Retailing

Growing Diversity of Formats

Increasing Industry Concentration

Globalization

PPT 2-5

New Types of Retailers

• Category Specialists

-PetsMart

-Bed, Bath and Beyond

- Michaels

• CarMax and Auto Nation

• Wal-Mart Supercenters

-Supermarket + Discount Store

• Ebay, Priceline, Travelocity

PPT 2-6

Increasing Concentration

Drug Stores

Walgreens, CVS, Rite-Aid and Eckerds

53% of sales

85% of sales

Discount Stores

Wal-Mart, Target and Kmart

PPT 2-7

Globalization of Wal-Mart

PPT 2-8

Types of Retailers

• Retailers Use Different Retail Mixes

-merchandise: variety (breadth) / assortment (depth)

-services

-store design, visual merchandising

-location

-pricing

• Infinite Variations

• Survival of the Fitness – Some combination of retail mixes satisfy the needs of significant segments and persist over time.

PPT 2-9

Classification by Type of Merchandise

PPT 2-10

Sales by Merchandise Category

PPT 2-11

Merchandise Offering

• Variety (breadth of merchandise)

- The number of merchandise categories

Assortment (depth of merchandise)

-the number of items in a category (SKUs)

PPT 2-12

Variety and Assortment of Bicycles

PPT 2-13

Types of Retailers

Food Retailers

Mom and Pop Stores

Convenience Stores

Supermarkets

Supercenters

General Merchandise Retailers

Department Stores

Specialty Stores

Discount Stores

Category Specialists

Off-Price Retailers

Warehouse Clubs

PPT 2-14

Outlet % Shopping Number of Weekly

Weekly Trips Spending

Supermarkets 100 2.4 $ 72.82

General merchandise 68 1.3 32.53discount stores

Fast-food restaurants 65 1.9 16.32

Drug stores 39 1.2 18.70

Convenience stores 37 2.4 19.72

Wholesale clubs 27 1.7 75.12

Specialty food stores 9 1.0 23.70

Source: “Consumers Are Skeptical Again,” “63rd Annual Report of the Grocery Industry,” Progressive Grocer, April 1996, p.42.

Shopping Patterns by Types of Retail Outlets

PPT 2-15

Food Retailers

Mom and Pops – Supermarkets -Cars, highways and TV to build brands

-Knowledgeable customers – self service

-Perishable vs. packaged goods

Big Box Retailers -Warehouse Clubs

-Supercenters

-Hypermarkets

Convenience Stores

PPT 2-16

Types of Food Retailers

PPT 2-17

Issues in Food Retailing

Competition from Discount Stores

Changing Consumption Patterns

EfficientDistribution Lower Costs Lower Prices

Time Pressure Eating Out More Meal Solutions

PPT 2-18

Types of General Merchandise Retailers

• Discount Stores

• Specialty Stores

• Category Specialists

• Home Improvement Centers

• Department Stores

• Drugstores

• Off-Price retailers

• Value Retailers

PPT 2-19

Characteristics of General Merchandise Retailers

PPT 2-20

Issues in Discount Store Retailing

• Only Big Three Left – Wal-Mart, Kmart, 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

PPT 2-21

Issues in Specialty Store Retailing

Mall-Based Apparel Retailers:

Decline in Mall Shopping and Apparel Sales

-Lack of New Fashions

-Less Interest in Fashion

-Increase Price Consciousness

Lifestyle Formats – Banana Republic and Hot Topics

PPT 2-22

Category Specialists

Deep and Narrow Assortments – Destination Stores

Low Price and Service

Wholesaling to Business Customers and Retailing to Consumers

Incredible Growth

Increased Competition with National Expansion and Consolidation

PPT 2-23

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

PPT 2-24

Issues in Drug Store Retailing

Consolidation – Walgreens, CVS, Rite-Aid, Eckerds

Competition from Supermarkets and Discount Stores – Pharmaceuticals

Evolution to a New Format

-Stand Alone Sites with Drive Thru Windows

-Convenient Store Front End

PPT 2-25

Issues in Off-Price Retailing

• Opportunistic Buying

• Hurt By Sales in Department Stores

• Buying First Line Merchandise

PPT 2-26

Issues in Value Retailing

Target Lower Income Families

Low Cost Low Prices

-Low Cost Location

-Limited Services

One of the Fastest Growing Retail Segments

PPT 2-27

Summary

Many New Types of retailers, Increased Diversity to Meet Diverse Needs

Many New Types of retailers, IncreasedDiversity to Meet Diverse Needs

Most People Shop at All Types Dependingon Situations – Growth in Cross-Shopping

PPT 2-28

Non-store Retail Formats

Electronic Retailing

Catalog and Direct Mail

Direct Selling

Television Home Shopping

Vending Machines

PPT 2-29

Types of Nonstore Retailers

PPT 2-30

Sales by Non-store Format

2005

PPT 2-31

Issues in Catalog Retailing

• Low Start Up Cost

• Evolution of Multi-Channel Offering

-Electronic Channel, Stores

• Increasing Mail Costs

• Clutter from other Catalogs

PPT 2-32

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

PPT 2-33

Type of Service Service Retail Firms

Airlines American, Delta, British Airways, Singapore Airways

Automobile maint/repair Jiffy Lube, Midas, AAMCO

Automobile rental Hertz, Avis, Budget, Alamo

Banks Citibank, NCNB, Bank of America

Child care centers Kindercare, Gymboree

Credit cards American Express, VISA, Mastercard

Education University of Florida, Babson College

Entertainment parks Disney, Universal Studios, Six Flags

Express package delivery Federal Express, UPS, US Postal Service

Financial services Merrill Lynch, Dean Witter

Fitness Jazzercise, Bally’s, Gold’s Gym

Health Care Humana, HCA

Home maintenance Chemlawn, MiniMaid, Roto-Rooter

Examples of Service Retailers

PPT 2-34

Examples of Service Retailers

Type of Service Service Retail Firms

Hotels and motels Hyatt, Sheraton, Marriott, Days Inn

Income tax preparation H & R Block

Insurance Allstate, State Farm

Internet access/Elec info. American On-Line, CompuServe

Long-distance telephone AT&T, MCI, Sprint

Movie theaters AMC, Loews/Sony, Universal

Real estate Century 21, Coldwell Banker

Restaurants TGI Friday’s, Wendy’s, Pizza Hut

Truck rentals U-Haul, Ryder

Weight loss Weight Watchers, Jenny Craig

Video rental Blockbuster

Vision centers Lenscrafter, Pearle

PPT 2-35

Merchandise/Service Continuum

PPT 2-36

Types of Retail Ownership

• Independent, Single Store Establishments

Consumer Owned Cooperatives

Wholesaler Owned Cooperatives

• Corporate Chains

• Franchises

PPT 2-37

Trends in Ownership

Concentration on One Format

Growth in Services Franchising

PPT 2-38

Franchising

30 – 40% of US Retail Sales

Franchisee Pays Fixed Fee Plus % of Sales

Franchisee Implements Program

Why is This Ownership Format Efficient?

PPT 2-39

Reasons for Franchising Growth

Technological advances

Profitable utilization of capital resources

Attainment of the “American Dream”

Demographic expansion

Product/service consistency

PPT 2-40

Types of Franchise Systems

Territorial

Operating

Mobile

Distributorship

Co-ownership

Co-management

Leasing/Licensing

Manufacturing

Service

PPT 2-41

Reasons for Franchising Failure

Inept management

Fraudulent activities

Market saturation

PPT 2-42

Franchisor Positions in the Marketing Channel

Manufacturer - retailer

Manufacturer - wholesaler

Wholesaler - retailer

Service sponsor - retailer

PPT 2-43

Franchisor Benefits

Continuous marketContinuous market

Market informationMarket information

MoneyMoney

Sales of productsSales of products

Rental and lease feesRental and lease fees

License fees License fees

Management feesManagement fees

Royalty fees

PPT 2-44

Franchisee Benefits

Initial Services

Market survey and site selection, facility design and layout, lease negotiation advice, financing advice, operating manuals, management training programs, and employee training.

Continuous Services

Field supervision, merchandising and promotional materials, management and employee retraining, quality inspection, national advertising, centralized purchasing, market data and guidance, auditing and record keeping, management reports, and group insurance plans.

PPT 2-45

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.

PPT 2-46

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.

PPT 2-47

Franchising Trends for the New Millennium

Sustained growth

Enduring plus un-imagined applications

International expansion

Increasing tensions

Greater emphasis on financial returns

PPT 2-48

Theories of Retail Institution Change

CYCLICAL THEORIESCYCLICAL THEORIES

Wheel of retailing (price/service)Accordion Theory (assortment)

EVOLUTIONARY THEORIESEVOLUTIONARY THEORIES

Dialectic process (retailer)Natural selection (customer)

PPT 2-49

Wheel of Retailing

PPT 2-50

The Dialectic Process

Department store

High marginLow turnoverHigh priceFull serviceDowntown locationPlush facilities

THESIS

ANTITHESIS

SYNTHESIS

Source: Reprinted with the permission ofMacmillan College Publishing Company fromRetailing, 4th Edition, by Dale M. Lewison.Copyright © 1991 by MacmillanCollege Publishing Company, Inc.

Discount store

Low marginHigh turnoverLow priceSelf-serviceLow rent locationSpartan facilities

Discount department store

Average marginsAverage turnoverModerate pricesLimited servicesSuburban locationsModest facilities