Lecture Retailing management (6/e): Chapter 2 - Levy Weitz

Lecture Retailing management (6/e) - Chapter 2: Types of retailers. This chapter describes the different types of retailers and how retailers are using the multichannel approach to attract customers.

Retailing Management, 6/e Copyright © 2007 by The McGraw­Hill Companies, Inc. All rights reserved.

Types of Retailers

The World of Retailing

General Trends in Retailing

• New Types of Retailers

• Increased Concentration

• Globalization

• Growth In Services Retailer

• Demise of Pure Electronic Retailers (Webvan,

eToys, etc)

• Growth in Use of Multi-Channel Retailing by

Traditional Retailers

• Increase Use of Technology to Reduce Cost,

Increase Value Delivered

Merchandise Offering

• Variety (breadth of merchandise)

The number of merchandise categories

• Assortment (depth of merchandise)

The number of items in a category (SKUs)

Stockbyte/Punchstock Images Jack Star/PhotoLink/Getty Images C Squared Studios/Getty Images

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Variety and Assortment of Bicycles

Types of Retailers

NAICS Codes for Retailers

Food Retailers

Primary Shopping Format for Food Sales

Growth Rates by Retail Format

Globalization of Wal-Mart

Characteristics of Food Retailers

Limited Assortment Supermarkets

Save-A-Lot’s limited assortment format means that stores carry the most

frequently purchased grocery items in the most popular size and variety

The company carries high quality exclusive brands – many produced by the

same manufacturers of leading name brands – and an assortment of

nationally branded items.

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

Used by permission of Save-A-Lot

Conventional Supermarket Survival Pack

Emphasize Fresh Perishables

Target health conscious and ethnic consumers

Provide a better in-store experience

Offer more private label brands

-Perishable vs packaged goods

Big Box Retailers

-Warehouse Clubs

-Supercenters

-Hypermarkets

Convenience Stores

Convenience Stores Fight Competition

• Tailors associates to local market

• Stores are more convenient to shop

• Offers fresh food

• Fast, casual restaurants

• Financial services available

• Opening smaller stores closer to

consumers – like airports

Issues in Food Retailing

Competition from Discount Stores

Changing Consumption Patterns

Efficient

Distribution Lower Costs Lower Prices

Time Pressure Eating Out More Meal Solutions

Types of General Merchandise Retailers

Retailers

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

Three Tiers of Department Stores

First Tier: upscale, high fashion chains with

exclusive designer merchandise and excellent

customer service.

Example: Nordstrom, Neiman Marcus,

Bloomingdales, Saks

Second Tier: Retailers sell more modestly

priced merchandise with less customer service:

Example: Macy’s

Third Tier: Value oriented caters to more price

conscious customer

Example: JCPenney, Sears, Kohl’s

Rob Melnychuk/Getty Images

What To Do With an Eroding Market

To deal with an eroding market Department stores are:

•attempting to increase the amount of exclusive merchandise

they sell

•undertaking marketing campaigns to develop strong images

for their stores and brands

•building better relationships with

their key customers

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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

McGraw-Hill Companies,

Inc./Gary He, photographer

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 – Abercrombie

and Fitch and Hot Topics

McGraw-Hill Companies, Inc./Gary He, photographer

Issues in Drug Store Retailing

• Consolidation – Walgreens, CVS,

Rite-Aid

• Competition from Supermarkets,

discount Stores and mail-in orders

• Evolution to a New Format

• -Stand Alone Sites with Drive Thru

Windows

• -offering more frequent purchase

food items

• Improved systems provide

personalized service in the

pharmacy

Keith Brofsky/Getty Images

Home Improvement Centers

Displays are warehoused

Customer Service: How to

select and how to use

merchandise

Competition focuses on

price, effort to differentiate

and services provided

Ryan McVay/Getty Images

Issues in Extreme Value Retailing

• Focuses on Lower Income Consumers

• Names mostly imply good value not $1 price

points

• Low Cost Location

• Limited Services

• One of the Fastest Growing Retail Segments

Dollar Tree Family Dollar

Dollar General 99 Cents Only Store

Stockbyte/Punchstock Images

Non-store Retail Formats

Electronic Retailing Catalog and Direct Mail

Direct Selling Television Home Shopping

Vending Machines

Royalty-Free/CORBIS Ryan McVay/Getty Images

Electronic Retailing

• History of frenzied investments and

false predictions of retail dominance

• Primarily used by traditional retailers to

compliment store and catalog offerings

• Exclusive e-tailers target small and

dispersed niche markets

Randy Allbritton/Getty Images

What are Amazon and eBay?

• Amazon.com – Merchandise to consumers

Provides website development and

fulfillment services to other retailers

• eBay – Acts as a mall or other shopping

center providing a “place” for buyers and

sellers to meet

Don Farrall/Getty Images

Issues in Catalog Retailing

• Low Start Up Cost

• Evolution of Multi-Channel Offering

• Hard to compete with large well established firms

• Increasing Mail Costs

• Clutter from other Catalogs

• General merchandise catalogs like JC Penney

• Specialty Catalogs like JC Whitney, Victoria

Secret

Issues in Direct Selling

• Providing information and demonstrations

is costly

• Party plan system: merchandise is

demonstrated in a party atmosphere

• Multi-level network: Master distributors sell

to distributors who sell merchandise

• Pyramid schemes: Firm sells to other

distributors and little if any merchandise

goes to end users

Issues in Television Home Shopping

• Consumers watch cable stations, infomercials or

direct response ads

• Few consumers watch regularly

• Most purchases made by small proportion of

viewers

• Customers can’t examine merchandise

• Customers must wait for merchandise to come

on

• Sells mostly jewelry, apparel, cosmetics,

kitchenware, exercise equipment

Royalty-Free/CORBIS

Issues in Vending Machine Retailing

• Sales growth has been

declining due to higher

prices and healthier eating

habits

• New technology may help

sales growth

• Vending machines are

beginning to accept credit

• Trend of placing machines

in captive consumer

locations

Ryan McVay/Getty Images

Types of Nonstore Retailers

Sales by Catalog Retailers

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

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

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

Home maintenance Chemlawn, MiniMaid, Roto-Rooter

Examples of Service Retailers

Examples of Service Retailers

Hotels and motels Hyatt, Sheraton, Marriott, Days Inn

Income tax preparation H & R Block

Internet access/Elec info American On-Line, CompuServe

Movie theaters AMC, Loews/Sony, Universal

Real estate Century 21, Coldwell Banker

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

Weight loss Weight Watchers, Jenny Craig

Video rental Blockbuster, Hollywood Video

Vision centers Lenscrafter, Pearle

Merchandise/Service Continuum

Types of Retail Ownership

Wholesaler Owned Cooperatives

(c) Brand X Pictures/PunchStock

Retailers Using Franchise Business Model

Reasons for Franchising Growth

Technological advancesProfitable utilization of capital resources

Attainment of the “American Dream”

Demographic expansionProduct/service consistency

Types of Franchise Systems

Territorial Operating Mobile Distributorship Co-ownership Co-management Leasing/Licensing Manufacturing

Service

Reasons for Franchising Failure

Inept management

Fraudulent activities

Market saturation

Franchisor Positions in the Marketing Channel

Franchisor Benefits

Continuous market Market information

Money

Sales of products Rental and lease fees License fees

Management fees

Royalty fees

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.

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.

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.

Franchising Trends for the New Millenium

First to Pursue Global Markets?

Discount Stores Category Specialists Department Stores Supermarkets

Services Retailers

Becoming More Concentrated?

Traditionally retailers have been local

businesses.

• Why are bigger firms emerging?

• Why are least concentrated sectors food

retailers and services retailers?