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

RETAILING

Walton’s .5 & .10

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

• Identify retailers in terms of the utilities they provide.

• Explain the alternative ways to classify retail outlets.

• Understand the many methods of non-store retailing.

• Classify retailers in terms of the retail positioning matrix.

• Develop retailing mix strategies over the life cycle of a retail store.

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PP18-AA Lowest Prices on Earth!! PP18-AA Lowest Prices on Earth!! • Buy.com is an online retail business that sells

consumer products at or below cost. The company’s goal is to become the name all buyers associate with low price.

• How does Buy.com make up the deficit? By selling advertising space on its Web site. Presently, the company is growing at a rate that will make it the fastest growing company in U.S. history.

• Can a business survive with a strategy based on only having the lowest price?

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PP18-BB Definition of Retailing PP18-BB Definition of Retailing

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

goods and services to ultimate customers for personal,

family or household use.

In the channel of distribution, retailing is where the

customer meets the product. It is through retailing that

exchange occurs.

all activities involved in selling, renting, and providing

goods and services to ultimate customers for personal,

family or household use.

In the channel of distribution, retailing is where the

customer meets the product. It is through retailing that

exchange occurs.

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PP18-CC Retailing Creates Value PP18-CC Retailing Creates Value

• Retailing’s economic value is represented by:

1. People employed in retailing, and

2. The total amount of money exchanged in

retail sales.

• Utilities provided by retailers create value for customers. Time, place, possession, and form utilities are offered by most retailers.

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

Wells Fargo

Saturn

Levi Strausswww.levi.com

Toys “ R ” Uswww.toysrus.com

One of the best-run banks in the United States, Wells Fargo is intensifyingit’s drive to reach retail customers by opening minibanks in supermarkets.This new form of banking is designed to complement ATMs, which already dispense 75% of the bank’s cash.

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

Levi Strauss & Co. now offers the Levi’s Original Spin program whichallows customers to create their own jeans by selecting from three models,five leg types, two flys, and many color and fabric options. The jeans aredelivered in 2 to 3 weeks for $55.

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

Can you match them?Time Place Possession Form

_____ _____ _____ _____

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PP18-A The Largest RetailersPP18-A The Largest Retailers

CategoryCategory Retailer(s)Retailer(s) Sales ($, in billions)Sales ($, in billions)

Department stores Department stores SearsJ C Penney

SearsJ C Penney

41.32230.678

41.32230.678

Apparel Apparel LimitedTJX

LimitedTJX

9.347 7.9499.347

7.949

Consumer Electronics Consumer Electronics Circuit CityBest Buy

Circuit CityBest Buy

8.8718.358

8.8718.358

Drug and Discount Drug and Discount Wal-MartKmart

Wal-MartKmart

139.20833.674

139.20833.674

Home Improvement Home Improvement Home DepotLowe’s

Home DepotLowe’s

30.21912.245

30.21912.245

Home ShoppingHome Shopping Service MerchandiseFingerhut

Service MerchandiseFingerhut

3.3271.912

3.3271.912

Specialty Retailers Specialty Retailers CostcoToys R Us

CostcoToys R Us

24.27011.200

24.27011.200

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PP18-DD Global Economic Impact of RetailingPP18-DD Global Economic Impact of Retailing

• Four of the 25 largest businesses in the U.S. are retailers.

• In 1997, Wal-Mart’s $119 billion in sales surpassed the gross domestic product of Finland for the same year.

• Sears, Wal-Mart, Kmart, and JCPenny together employ more than 1.6 million people.

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

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Automotive dealers

Food stores

General merchandisegroupEating and

drinking placesGasoline service

stationsBuilding material,

hardware, etc.Furniture and home

furnishings storesApparel and

accessory storesDrug andproprietary stores

Liquor stores

Other

3.83.8

24.524.5

16.716.7

12.912.99.29.2

6.26.25.95.9

5.75.7

4.94.9

.9.9

9.69.6

PP18-2 Retail Sales By Type of BusinessPP18-2 Retail Sales By Type of Business

0 325 650

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PP18-EE Concept CheckPP18-EE Concept Check

1. When Levi Strauss makes jeans cut

to a customer’s exact preferences

and measurements, what utility is

provided?

2. Two measures of the importance of

retailing in the global economy are

________ and ________ .

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PP18-FF Classifying Retail Outlets PP18-FF Classifying Retail Outlets Retail outlets can be classified in several ways:

-- Form of ownership. Who owns the

outlet.

-- Level of service. The degree of service

provided to the customer.

-- Merchandise line. How many different

types of products a store carries and in

what assortment.

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Form of ownership Independent retailerCorporate chainContractual system

• Retailer-sponsored cooperative• Wholesaler-sponsored voluntary chainFranchise

Level of service Self-serviceLimited serviceFull-service

Merchandise line Depth• Single line• Limited line

Breadth• General merchandise• Scrambled merchandise

PP18-3 Classifying retail outletsPP18-3 Classifying retail outlets METHOD OF CLASSIFICATION DESCRIPTION OF RETAIL OUTLET

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PP18-4 The possibilities and costs of franchisingPP18-4 The possibilities and costs of franchising

FRANCHISE TYPE OF BUSINESS

TOTAL START-UP COSTS

NUMBER OF FRANCHISES

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

Merry Maids Cleaning Service $27,500-$40,500

700

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

Mail Boxes Etc. Postal Services $55,000-$75,000 2,953

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

Radio Shack Electronic accessories $67,500 1,934

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

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PP18-GG Depth and Breadth of Product LinePP18-GG Depth and Breadth of Product Line • Depth of product line means that the store carries a large

assortment of each item, such as shoe stores that offer running shoes, dress shoes, and children’s shoes.

• Breadth of product line refers to the variety of different items a store carries.

-- scrambled merchandising refers to retailers that offer

several unrelated product lines in a single store.

-- hypermarkets are very large retail outlets that have the

goal of offering customers everything at one outlet.

-- Supercenters are retailers that combine a typical

merchandise store with a grocery store.

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

Nike running shoes

Florsheim dress shoes

Top Sider boat shoes

Adidas tennis shoes

Amana refrigeratorSony TV sets

JVC videocassetterecorders

General Electricdishwashers

Sharp microwaveovens

Classical

Rock

Jazz

Country Western

SuitsTies

JacketsOvercoats

SocksShirts

Depth:Number of

items withineach product

line

Breadth: Number of different product lines

Shoes Appliances CDs Men’s Clothing

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

DISCOUNT STORE SUPERCENTER HYPERMARKET

Average size

(in square feet)

Number of employees

Annual Sales

($ millions per store)

Gross margin

Number of items stocked

70,000

200-300

$10-$20

18%-19%

60,000-80,000

150,000

300-350

$20-$50

15%-16%

100,000

230,000

400-600

$75-$100

7%-8%

60,000-70,000

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PP18-HH Concept CheckPP18-HH Concept Check

1. Centralized decision-making and purchasing are an advantage of ________ ownership.

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

3. Would a shop for big men’s clothes carrying pants in sizes 40 to 60 have a broad or deep product line?

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PP18-7 Forms of Non-store RetailingPP18-7 Forms of Non-store Retailing

Automaticvending

Direct mailand

catalogs

Televisionhome

shopping

On-lineretailing

Tele-marketing

Direct selling

High

Low

Act

ive

cust

omer

invo

lvem

ent

Active retailer involvementLow High

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PP18-II Automatic Vending PP18-II Automatic Vending

• Nonstore retailing that makes it possible to serve customers where stores cannot.

• Maintenance and operating costs are high.

• Small convenience products are available in vending machines.

• Of the 3 million vending machines now in use, 1.8 million are soft drink machines.

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PP18-JJ Direct Mail & Catalogs PP18-JJ Direct Mail & Catalogs

• Marketing efficiency is improved through segmentation and targeting.

• Customer value is enhance by providing a fast and convenient means of making a purchase.

• In 1998 Americans increased their catalog spending to $87 billion.

• A typical household receives 50 catalogs each year.

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PP18-KK Television Home Shopping PP18-KK Television Home Shopping • TV home shopping is possible when consumers

watch a shopping channel on which products are displayed; orders are placed over the telephone.

• Two popular home shopping programs reach 60 million homes and have combined sales of $2 billion.

• TV home shopping programs traditionally attract 40-50 year old females.

• Limitations of TV shopping have been the lack of buyer-seller interaction and the inability of consumers to control the items they see.

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PP18-LL Online Retailing PP18-LL Online Retailing • Online retailing allows consumers to search for,

evaluate, and order products through the Internet.• The advantages of online retailing are:

–ability to comparison shop–privacy–variety

• Forecasts suggest that current annual sales of $10 billion could reach $100 billion in just a few years.

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PP18-MM Telemarketing PP18-MM Telemarketing • Telemarketing involves using the telephone to

interact with and sell directly to consumers.

• According to the American Telemarketing Association, telemarketing sales exceed $500 billion.

• As the use of telemarketing grows, consumer privacy has become a topic of discussion among consumers, Congress, the Federal Trade Commission, and businesses.

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PP18-NN Direct Selling PP18-NN Direct Selling • Direct selling involves direct sales of goods and

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

• Industry sales are more than $16 billion, but are declining in the U.S. as retail chains begin to carry similar products at discount prices, and the increasing number of dual-career households reduces the number of potential buyers at home.

• Many direct selling retailers are expanding into international markets to offset the decline in domestic sales.

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PP18-OO Concept CheckPP18-OO Concept Check

1. Successful catalog retailers often send ________ catalogs to ________ markets identified in their databases.

2. How are retailers increasing consumer interest and involvement in online retailing?

3. Where are direct-selling retail sales growing? Why?

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PP18-PP Retail Positioning Matrix PP18-PP Retail Positioning Matrix

• The retail positioning matrix positions retail outlets on two dimensions: breadth of product line and value added.

• Breadth of product line is the range of products sold through each outlet.

• Value added includes such elements as location, product reliability, and/or prestige.

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PP18-8 Retail Positioning MatrixPP18-8 Retail Positioning Matrix

Kmart

Just for Feet Tiffany

Bloomingdale’s

Broad

Narrow

Value addedLow High

Breadth ofproduct line

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PP18-QQ Key to Retail Positioning PP18-QQ Key to Retail Positioning

For a store to be successfully positioned, it must have an identity which has some advantages over competitors, and at the same time are recognized and valued by consumers.

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PP18-RR The Retailing Mix PP18-RR The Retailing Mix

The retailing mix includes:

1. Goods and services

2. Physical distribution

3. Communications tactics chosen by a store.

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PP18-9 The Retailing MixPP18-9 The Retailing Mix

Consumers

Store locationDistribution centers

WarehousingTransportationHandling goods

Packing

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

Personal sellingAdvertisingWindow displaysInternal displaysPublic relations Store layout Catalogs Telephone sales

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

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

Low Value-added/ broad line (Kmart)

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

High Value-added/narrow line (Tiffany)

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

Low Value-addednarrow line(Just for Feet)

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

PP18-F Implications of the Retail Positioning MixPP18-F Implications of the Retail Positioning Mix

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PP18-SSa Retail Pricing Terminology PP18-SSa Retail Pricing Terminology • Markup refers to how much should be added to the

cost the retailer paid for the product to reach a final selling price.

• Original markup is the difference between the retailer’s original cost and initial selling price.

• The maintained markup is the difference between the final selling price and retailer cost and is also the gross margin.

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PP18-SSb Retail Pricing Terminology PP18-SSb Retail Pricing Terminology • Markdown occurs when the product does not sell at

the original price and an adjustment is necessary.

• Shrinkage is theft of merchandise by customers and employees.

• Off-price retailing involves selling brand name merchandise at lower than regular prices. The difference between the off-price retailer and a discount store is that off-price merchandise is bought by the retailer from manufacturers excess inventory at prices below wholesale prices.

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PP18-TT Store Location PP18-TT Store Location

• Central business district

• regional shopping centers

• community shopping centers

• strip location

• power center

Types of Store Locations

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PP18-UU Concept CheckPP18-UU Concept Check

1. What are the two dimensions of the

retail positioning matrix?

2. How does original markup differ from

maintained markup?

3. A huge shopping strip with multiple

anchor stores is a ________ center.

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Passageof time

As time passes, outlet adds services

As more time passes, outlet adds still more services

4. New form of outlet enters retailing environment with characteristics of outlet in Box 1

4. New form of outlet enters retailing environment with characteristics of outlet in Box 1

1. Outlet starts with:Low pricesLow marginsLow status

1. Outlet starts with:Low pricesLow marginsLow status

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

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

2. Outlet now has:Higher pricesHigher marginsHigher status

2. Outlet now has:Higher pricesHigher marginsHigher status

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

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

ark

et s

har

e or

pro

fit

Earlygrowth

Accelerateddevelopment

Maturity Decline

Val

ue-r

etai

l sto

res

On

-lin

e re

tail

ers

Sin

gle-

pri

ce s

tore

s

War

ehou

se c

lubs

Fas

t fo

od o

utl

ets

Con

ven

ienc

e st

ores

Supe

rmar

kets

Dep

artm

ent

stor

es

Cat

alog

Ret

aile

rs

Mal

ls (

?)

Gen

eral

sto

re

Fac

tory

ou

tlet

sto

res

Profit

Market share

Sin

gle-

bra

nd s

tore

s

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PP18-VV Future Changes in RetailingPP18-VV Future Changes in Retailing

Impact of Technology

Changing Shopping Behavior

Importance of Brands

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PP18-WW Concept CheckPP18-WW Concept Check

1. According to the wheel of retailing,

when a new retail form appears, how

would you characterize it’s image?

2. Market share is usually fought out

before the ________ stage of the retail

life cycle.

3. What is a smart card?