2Questions 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?
3General Trends in Retailing New Types of RetailersIncreased ConcentrationGlobalizationGrowth In Services RetailerDemise of Pure Electronic Retailers (Webvan, eToys, etc)Growth in Use of Multi-Channel Retailing by Traditional RetailersIncrease Use of Technology to Reduce Cost; Increase Value Delivered
4Types of Retailers Retailers Use Different Retail Mixes -merchandise: variety (breadth) / assortment (depth)-services-store design, visual merchandising-location-pricingInfinite VariationsSome combination of retail mixes satisfy the needs of significant segments and persist over time.
6Types of Merchandise Retailers Food RetailersGeneral Merchandise RetailersMom and Pop StoresConvenience StoresSupermarketsSupercentersDepartment StoresSpecialty StoresDiscount StoresCategory SpecialistsOff-Price RetailersWarehouse ClubsValue Retailers
7Merchandise Offering Variety (breadth of merchandise): wide vs. narrow - The number of merchandise categoriesAssortment (depth of merchandise): deep vs. shallow-the number of items in a category (SKUs)
8Food Retailers Supermarkets Supercenters Warehouse Clubs Channel preference for food shopping channel where grocery purchasers do most of their food shoppingSupermarketsSupercentersWarehouse ClubsConvenience Stores
10Supermarkets Conventional supermarkets 30,000 SKULimited assortment supermarkets (extreme value food retailers)2000 SKUOffer one or two brands and sizesDesigned to maximize efficiency and reduce costsOffer merchandise at 40-60% lower prices than conventional supermarketsSave-A-Lot, ALDI (German’s Wal-Mart)
11ALDI: German’s Wal-Mart ALDI provides quality merchandise at low prices by reducing its assortment in order to control store operating expenses
12ALDI’s Strategy4,100 stores in Germany and 6,600 worldwide, including 800 stores in 26 US statesCheap..Only two brands of toilet paper and one brand of picklesSTRATEGY:Stores sell less productsALDI exclusive labelHigh quality of products at cheaper pricesHOW?Strong control over quality and priceSimplify shipping and handlingReduce labor costs by keeping limited store staff, etc.
13Trends in Supermarket Retailing Competition from Discount StoresChanging Consumption PatternsEfficientDistributionLower CostsLower PricesTime PressureEating Out MoreMeal Solutions
14Conventional Supermarket Survival Pack Emphasize Fresh PerishablesWegmansTarget health conscious and ethnic consumersProvide a better in-store experienceOffer more private label brandsChef-crafted meals on the go at EatZi’s
15Supercenters and Warehouse Clubs The fastest growing retail categoryLarge stores (150,000 – 220,000 square feet) that combine a supermarket with a full-line discount storeOne-stop shopping experienceOffer a limited and irregular assortment of food and general merchandise with little service at low pricesUse low-locations, inexpensive store design, little customer serviceLow inventory holding costs by carrying a limited assortment of fast selling items
16Convenience Store Tailors assortments to local market Makes more convenient to shopOffers fresh, healthy foodFast, casual restaurantsFinancial services availableOpening smaller stores closer to consumers (like airports)
17Types of General Merchandise Retailers Department StoresSpecialty StoresCategory SpecialistsHome Improvement CentersDiscount StoresDrugstoresOff-Price retailersExtreme Value Retailers
18Issues in Department Store Retailing Competition-Discount Stores on Price-Specialty Stores on Service, Depth of AssortmentLower Cost by Reducing Services (?)-Centralized Cash WrapsMore Sales (?)-Customers Wait for SaleFocus on Apparel and Soft HomeDevelop Private Labels and Exclusive Brands
19Department Stores: What To Do With an Eroding Market To deal with an eroding marketDepartment stores are:attempting to increase the amount of exclusive merchandise they sellundertaking marketing campaigns to develop strong images for their stores and brandsbuilding better relationships with their key customersRoyalty-Free/CORBIS
20Issues in Discount Store Retailing Only Big LeftWal-Mart, TargetWal-Mart’s DominanceDifferentiate StrategyWal-Mart = Low Price and Good valueTarget = More Fashionable ApparelCompetition from Category SpecialistsToys-R-Us, Circuit City, Sports AuthorityMcGraw-Hill Companies, Inc./Gary He, photographer
21Issues in Specialty Store Retailing Mall-Based Apparel RetailersDecline in Mall Shopping and Apparel Sales-Lack of New Fashions-Less Interest in Fashion-Increased Price ConsciousnessLifestyle Formats –Abercrombie and FitchHot TopicsMcGraw-Hill Companies, Inc./Andrew Resek, Photographer
22Specialty Store Retailers McGraw-Hill Companies, Inc./Andrew Resek, Photographer
23Issues in Drug Store Retailing Consolidation – Walgreens, CVS, Rite-AidCompetition from Supermarkets, discount Stores and mail-in ordersEvolution to a New Format-Stand Alone Sites with Drive Thru Windows-offering more frequent purchase food itemsImproved systems provide personalized service in the pharmacy
24Category Specialists Deep and Narrow Assortments Destination Stores Category killersLow Price and ServiceWholesaling to Business Customers and Retailing to ConsumersIncredible GrowthBass Pro Shops
25Category Specialists Sephora, France’s leading perfume/cosmetic chain LVMH’s division
26Issues in Extreme Value Retailing Focuses on Lower Income ConsumersNames mostly imply good value not $1 price pointsLow Cost LocationLimited ServicesOne of the Fastest Growing Retail SegmentsDollar TreeFamily DollarDollar General99 Cents Only Store
27Off-Price Retailers Close-out retailers Offer an inconsistent assortment of brand name merchandise at low pricesTJX companies (T.J. Maxx, Marshalls. HomeGoods)Ross Stores, Burlington Coat factory, Big Lots, Tuesday Morning
29Electronic RetailingMany retailers operate from virtual storefronts on the World Wide Web, usually maintaining little or no inventory, ordering directly from vendors to fill customer ordersHistory of frenzied investments and false predictions of retail dominancePrimarily used by traditional retailers to compliment store and catalog offeringsExclusive e-tailers target small and dispersed niche markets
30What are Amazon and eBay? – Merchandise to consumers. Provides website development and fulfillment services to other retailerseBay – Acts as a mall or other shopping center providing a “place” for buyers and sellers to meetDon Farrall/Getty Images
31Issues in Catalog Retailing Low Start Up CostEvolution of Multi-Channel OfferingHard to compete with large well established firmsIncreasing Mail CostsClutter from other CatalogsGeneral merchandise catalogs like JC PenneySpecialty Catalogs like Victoria Secret
32Issues in Direct Selling Completely bypasses retailers and wholesalersManufacturers set up their own channels to sell their products directly to consumersParty plan system: merchandise is demonstrated in a party atmosphereMulti-level network: Master distributors sell to distributors who sell merchandisePyramid schemes: Firm sells to other distributors and little if any merchandise goes to end users
33Issues in Television Home Shopping Consumers watch cable stations, infomercials or direct response adsFew consumers watch regularlyMost purchases made by small proportion of viewersCustomers can’t examine merchandiseCustomers must wait for merchandise to come onSells predominately jewelry, apparel, cosmetics, kitchenware, and exercise equipment
34Issues in Vending Machine Retailing Automatic MerchandisingAbout $25 billion worth of convenience goods are sold to Americans through 4.7 million vending machinesSales growth has been declining due to higher prices and healthier eating habitsNew technology may help sales growthTrend of placing machines in captive consumer locations
35Services vs. Merchandise Retailers IntangibilityProblems in Evaluating Service QualityPerformance of Service ProviderSimultaneous Production and DeliveryImportance of Service ProviderPerishabilityNo Inventory, Must Fill CapacityInconsistency of the OfferingImportance of HR Management
39Franchising 30 – 40% of US Retail Sales Franchisee Pays Fixed Fee Plus % of SalesFranchisee Implements ProgramWhy is this Ownership Format Efficient?The McGraw-Hill Companies, Inc./Jill Braaten, photographer
40Reasons for Franchising Growth Technological advancesProfitable utilization of capital resourcesAttainment of the “American Dream”Demographic expansionProduct/service consistency
41Reasons for Franchising Failure Inept managementFraudulent activitiesMarket saturation
42Franchisor Advantages/Disadvantages Rapid expansion, highly motivated franchisees do a good job, additional profits by selling franchisees products and services.DisadvantagesCompany-owned units may be more profitable, less control then independent retailers over advertising, pricing, personnel practices, etc.
43Franchisee Advantages/Disadvantages Established/proven product/service, business and technical assistance, and reduction in risk.DisadvantagesLoss 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.
44Franchising Trends for the New Millennium Sustained growthEnduring plus un-imagined applicationsInternational expansionIncreasing tensionsGreater emphasis on financial returns