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Types of Retailers Chapter 2 McGraw-Hill/Irwin

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1 Types of Retailers Chapter 2 McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2 Questions What trends shape today’s retailers?
What are the different types of retailers? How do retailers differ in terms of how they meet the needs of their customers? How do service retailers differ from merchandise retailers? What are the types of ownership for retail firms?

3 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

4 Types of Retailers Retailers Use Different Retail Mixes
-merchandise: variety (breadth) / assortment (depth) -services -store design, visual merchandising -location -pricing Infinite Variations Some combination of retail mixes satisfy the needs of significant segments and persist over time.

5 Different Retail Mixes
Merchandise: variety (breadth) Assortment (depth) Services Store design, visual merchandising Location Pricing

6 Types of Merchandise Retailers
Food Retailers General Merchandise Retailers Mom and Pop Stores Convenience Stores Supermarkets Supercenters Department Stores Specialty Stores Discount Stores Category Specialists Off-Price Retailers Warehouse Clubs Value Retailers

7 Merchandise Offering Variety (breadth of merchandise): wide vs. narrow
- The number of merchandise categories Assortment (depth of merchandise): deep vs. shallow -the number of items in a category (SKUs)

8 Food Retailers Supermarkets Supercenters Warehouse Clubs
Channel preference for food shopping channel where grocery purchasers do most of their food shopping Supermarkets Supercenters Warehouse Clubs Convenience Stores

9 Characteristics of Food Retailers

10 Supermarkets Conventional supermarkets
30,000 SKU Limited assortment supermarkets (extreme value food retailers) 2000 SKU Offer one or two brands and sizes Designed to maximize efficiency and reduce costs Offer merchandise at 40-60% lower prices than conventional supermarkets Save-A-Lot, ALDI (German’s Wal-Mart)

11 ALDI: German’s Wal-Mart
ALDI provides quality merchandise at low prices by reducing its assortment in order to control store operating expenses

12 ALDI’s Strategy 4,100 stores in Germany and 6,600 worldwide, including 800 stores in 26 US states Cheap.. Only two brands of toilet paper and one brand of pickles STRATEGY: Stores sell less products ALDI exclusive label High quality of products at cheaper prices HOW? Strong control over quality and price Simplify shipping and handling Reduce labor costs by keeping limited store staff, etc.

13 Trends in Supermarket Retailing
Competition from Discount Stores Changing Consumption Patterns Efficient Distribution Lower Costs Lower Prices Time Pressure Eating Out More Meal Solutions

14 Conventional Supermarket Survival Pack
Emphasize Fresh Perishables Wegmans Target health conscious and ethnic consumers Provide a better in-store experience Offer more private label brands Chef-crafted meals on the go at EatZi’s

15 Supercenters and Warehouse Clubs
The fastest growing retail category Large stores (150,000 – 220,000 square feet) that combine a supermarket with a full-line discount store One-stop shopping experience Offer a limited and irregular assortment of food and general merchandise with little service at low prices Use low-locations, inexpensive store design, little customer service Low inventory holding costs by carrying a limited assortment of fast selling items

16 Convenience Store Tailors assortments to local market
Makes more convenient to shop Offers fresh, healthy food Fast, casual restaurants Financial services available Opening smaller stores closer to consumers (like airports)

17 Types of General Merchandise Retailers
Department Stores Specialty Stores Category Specialists Home Improvement Centers Discount Stores Drugstores Off-Price retailers Extreme Value Retailers

18 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

19 Department Stores: 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 Royalty-Free/CORBIS

20 Issues in Discount Store Retailing
Only Big Left Wal-Mart, 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

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 -Increased Price Consciousness Lifestyle Formats – Abercrombie and Fitch Hot Topics McGraw-Hill Companies, Inc./Andrew Resek, Photographer

22 Specialty Store Retailers
McGraw-Hill Companies, Inc./Andrew Resek, Photographer

23 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

24 Category Specialists Deep and Narrow Assortments Destination Stores
Category killers Low Price and Service Wholesaling to Business Customers and Retailing to Consumers Incredible Growth Bass Pro Shops

25 Category Specialists Sephora, France’s leading perfume/cosmetic chain
LVMH’s division

26 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

27 Off-Price Retailers Close-out retailers
Offer an inconsistent assortment of brand name merchandise at low prices TJX companies (T.J. Maxx, Marshalls. HomeGoods) Ross Stores, Burlington Coat factory, Big Lots, Tuesday Morning

28 Types of Non-store Retailers

29 Electronic Retailing Many retailers operate from virtual storefronts on the World Wide Web, usually maintaining little or no inventory, ordering directly from vendors to fill customer orders 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

30 What are Amazon and eBay?
– 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

31 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 Victoria Secret

32 Issues in Direct Selling
Completely bypasses retailers and wholesalers Manufacturers set up their own channels to sell their products directly to consumers 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

33 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 predominately jewelry, apparel, cosmetics, kitchenware, and exercise equipment

34 Issues in Vending Machine Retailing
Automatic Merchandising About $25 billion worth of convenience goods are sold to Americans through 4.7 million vending machines Sales growth has been declining due to higher prices and healthier eating habits New technology may help sales growth Trend of placing machines in captive consumer locations

35 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

36 Merchandise/Service Continuum

37 Types of Retail Ownership
Independent, Single Store Establishments Wholesale-sponsored voluntary group Corporate Retail Chains Franchises (c) Brand X Pictures/PunchStock

38 Retailers Using Franchise Business Model

39 Franchising 30 – 40% of US Retail Sales
Franchisee Pays Fixed Fee Plus % of Sales Franchisee Implements Program Why is this Ownership Format Efficient? The McGraw-Hill Companies, Inc./Jill Braaten, photographer

40 Reasons for Franchising Growth
Technological advances Profitable utilization of capital resources Attainment of the “American Dream” Demographic expansion Product/service consistency

41 Reasons for Franchising Failure
Inept management Fraudulent activities Market saturation

42 Franchisor Advantages/Disadvantages
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.

43 Franchisee Advantages/Disadvantages
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.

44 Franchising Trends for the New Millennium
Sustained growth Enduring plus un-imagined applications International expansion Increasing tensions Greater emphasis on financial returns

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