Chapter 1- An Introduction to Retailing Chapter 2- Building and Sustaining Relationships in Retailing Chapter 3- Strategic Planning in Retailing

Retailing Retailing encompasses the business activities involved in selling goods and services to consumers for their personal, family, or household use. It includes every sale to the final consumer.

Issues in Retailing How can we best serve our customers while earning a fair profit? How can we stand out in a highly competitive environment where consumers have so many choices? High unemployment, low consumer confidence, high savings rates have reduced consumer spending. At the same time retail competition has increased through increased format blurring (sales of cameras at office supply stores, carpeting and major appliances at home improvement centers). How can we grow our business while retaining a core of loyal customers?

The Philosophy Retailers can best address these questions by fully understanding and applying the basic principles of retailing, as well as the elements in a well-structured, systematic, and focused retail strategy.

The Framework of Retailing

An Ideal Candidate for a Retailing Career Must be a people person (more important than technical knowledge). Technical skills can be taught more easily than people skills Must be flexible Should be decisive Must have analytical skills Must have stamina

Table 1-1: The 10 Largest Retailers in the United States (2011) Rank Company Main Emphasis 1 Wal-Mart Full-line discount stores, supercenters, membership clubs 2 Kroger Supermarkets, convenience stores, jewelry stores 3 Target Full-line discount stores, supercenters 4 Walgreens Drugstores 5 Home Depot Home centers 6 Costco Membership warehouse clubs 7 CVS Caremark Pharmacies 8 Lowe’s 9 Best Buy Electronics, major appliances 10 Sears Holdings Department store, discount (Kmart)

Figure 1-4: A Typical Channel of Distribution Retailer Manufacturer Wholesaler Final Consumer

Figure 1-5: The Retailer’s Role in the Sorting Process

Multi-Channel Retailing A retailer sells to consumers through multiple retail formats: Web sites Physical stores

Multi-Channel Retailing Cross selling across channels (in-store product availability info on Web site) Consistent pricing in all channels (credibility) Can buy, and return product regardless on channel Role of each channel Store– try on, ease of return, fast availability (immediacy), compare offerings Web– 24/7, product information, product reviews by customers, personalization (tailored assortment based on past purchases), most current pricing, closeout sales Catalog-permanency, true color

Figure 1-6: Apple

Distribution Types Exclusive: suppliers make agreements with one or few retailers, designating such retailers as the only ones to carry certain brands or products within a specified geographic area Intensive: suppliers sell through as many retailers as possible Selective: suppliers sell through a moderate number of retailers

Exclusive vs Intensive Distribution Exclusive Distribution– Fate of retailer is tied to manufacturer success, retailer has no “free-rider” concerns, retailer has less price competition, manufacturer is better assured of high levels of customer support Intensive Distribution- Manufacturer is better assured of maximizing sales (especially for convenience goods), retailers face strong competition for price and service, intratype competition Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

Figure 1-7: Comparing Distribution Types

Figure 1-8: Special Characteristics Affecting Retailers Impulse Purchase Small Average Sale Retailer’s Strategy Popularity of Stores

Retail Strategy An overall plan for guiding a retail firm Influences the firm’s business activities Influences firm’s response to market forces

Six Steps in Strategic Planning 1. Define the type of business (corporate mission) 2. Set long-run and short-run objectives 3. Determine the customer market 4. Devise an overall, long-run plan 5. Implement an integrated strategy 6. Evaluate and correct (fine-tune)

“Expect More. Pay Less” at Target

Aspects of Target’s Strategy Growth objectives Appeal to a prime market Distinctive image Focus Customer service Multiple points of contact Employee relations Innovation Commitment to technology Community involvement Monitoring performance

Figure 1-10: Applying the Retailing Concept Customer Orientation Retailing Concept Coordinated Effort Retail Strategy Value-driven Goal Orientation

The Build-A-Bear Experience: Never Boring

Customer Service Activities undertaken by a retailer in conjunction with the basic goods and services it sells. This includes: Store hours Parking Shopper-friendliness Credit acceptance Salespeople

A Customer Respect Checklist Do we trust our customers? Do we stand behind what we sell? Is keeping commitments to customers important to our company? Do we value customer time? Do we communicate with customers respectfully? Do we treat all customers with respect? Do we thank customers for their business? Do we respect employees?

Relationship Retailing Retailers seek to establish and maintain long-term bonds with customers, rather than act as if each sales transaction is a completely new encounter Concentrate on the total retail experience Monitor satisfaction Stay in touch with customers

Effective Relationship Retailing Use a “win-win” approach It is easier to keep existing customers happy than to gain new ones (present value of current customers income stream– cost of keeping existing customers content versus cost of replacing them with new customer Develop a customer database (loyalty programs) Ongoing customer contact is improved with information on people’s attributes and shopping behaviors

Types of Loyalty Programs Additional discounts at register Not a real loyalty program 1 free with every “n” items purchased Easily copied, no customer database Rebates based on cumulative purchases Customer maintains records Can develop “heavy half” programs like Hilton Targeted offerings and mailing based on purchase history Tesco example “Market research staff know more about my customers than board chairperson”

Relationship Management Among Retailers and Suppliers Disagreements may occur in the following areas (channel conflict): control over channel (private label) profit allocation (resale price control) number of competing retailers (exclusive, selective or intensive distribution) product displays promotional support (cooperative advertising funds and restrictions) payment terms (payment on time) operating flexibility gray market sales markdown monies, chargebacks by dominant retailers Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

Approaches to the Study of Retailing Institutional Functional Strategic

Parts of Retail Management: A Strategic Approach Building relationships and strategic planning Retailing institutions Consumer behavior and information gathering Elements of retailing strategy Integrating, analyzing, and improving retail strategy

CHAPTER 2: STRATEGIC PLANNING IN RETAILING 31

Chapter Objectives To explain what “value” really means and to highlight its pivotal role in retailers’ building and sustaining relationships To describe how both customer relationships and channel relationships may be nurtured in today’s highly competitive marketplace 32

Chapter Objectives (cont.) To examine the differences in relationship building between goods and services retailers To discuss the impact of technology on relationships in retailing To consider the interplay between retailers’ ethical performance and relationships in retailing 33

Definition of Value Value = Results + Process Quality Price + Customer Access Costs Results = Overall quality, instructions, ease of assembly, taste/quality/health, warranty, product testing by retailer Process Quality = Wide aisles, ease of finding, high in-stock position, fun experience, short waiting times Price= Costs + delivery + assembly + credit Customer access costs= warehouse club membership fees, inconvenient location, poor store hours, inadequate parking

What is Value? (cont.) Channel Perspective Value is a series of activities and processes (the “value chain”) that provide a certain value for the consumer. Customer Perspective Value is a perception that the shopper has of the value chain. It is the view of all the benefits from a purchase versus the price paid. 35

Retail Value Chain Represents the total bundle of benefits offered to consumers through a channel of distribution Store location and parking, retailer ambience, customer service, brands/products carried, product quality, retailer’s in-stock position, shipping, prices, image, and other elements 36

Potential Pitfalls to Avoid in Planning a Value-Oriented Retail Strategy Planning value solely from a price perspective Providing value-enhanced services that customers do not want or will not pay extra for Competing in the wrong value/price segment Believing augmented elements alone create value Paying lip service to customer service 37

Figure 2-2: A Value-Oriented Retailing Checklist Is value defined from a consumer perspective? Does the retailer have a clear value/price point? Is the retailer’s value position competitively defensible? Are channel partners capable of value-enhancing services? Does the retailer distinguish between expected and augmented value chain elements? Has the retailer identified potential value chain elements? Is the retailer’s value-oriented approach aimed at a distinct market? Is the retailer’s value-oriented approach consistent? 38

Figure 2-2: A Value-Oriented Retailing Checklist (cont.) Is the retailer’s value-oriented approach effectively communicated? Can the target market clearly identify the retailer’s positioning? Does the retailer’s positioning consider sales versus profits? Does the retailer set customer satisfaction goals? Does the retailer measure customer satisfaction levels? Is the retailer careful to avoid the pitfalls in value-oriented retailing? Is the retailer always looking out for new opportunities that will create customer value? 39

Customer Service Expected customer service is the service level that customers want to receive from any retailer such as basic employee courtesy. Augmented customer service includes the activities that enhance the shopping experience and give retailers a competitive advantage. 40

Expected Versus Augmented Levels of Customer Service Expected– Must have elements; do not differentiate retailer. While absence of these expected values provides anguish, presence does not provide satisfaction Augmented—Services that can provide a competitive advantage. Double warranty, special delivery, product demonstrations

Figure 2-4: Classifying Customer Services 42

Fundamental Decisions What customer services are expected and what customer services are augmented for a particular retailer? What level of customer service is proper to complement a firm’s image? Should there be a choice of customer services? Should customer services be free? How can a retailer measure the benefits of providing customer services against their costs? How can customer services be terminated? 43

Table 2-1: Typical Customer Services Credit Delivery Alterations/ Installations Packaging/gift wrapping Complaints/Returns handling Gift certificates Trade-ins Trial purchases Special sales Extended store hours Mail/phone orders 44

Table 2-1b: Miscellaneous Customer Services Bridal registry Interior designers Personal shoppers Ticket outlets Parking Water fountains Pay phones Baby strollers Restrooms Restaurants Babysitting Fitting rooms Beauty salons Fur storage Shopping bags Information 45

Figure 2-6: Turning Around Weak Customer Service Focus on Customer Concerns Empower Frontline Employees Show That You Are Listening Express Sincere Understanding Apologize and Rectify the Situation 46

Principles of Category Management Retailers listen more to customers Profitability is improved because inventory more closely matches demand By being better focused, each department is more desirable for shoppers Retail buyers are given more responsibilities and accountability for category results Retailers and suppliers must share data and be more computerized Retailers and suppliers must plan together 47

Figure 2-7: Elements Contributing to Effective Channel Relationships 48

Three Kinds of Service Retailing Rented goods services– leased cars, hotel rooms, carpet cleaning equipment Owned goods services– plumbing, appliance repair, Non-goods services– haircut, professional services (physician, lawyer) 49

Four Characteristics of Services Retailing Intangibility Inseparability Perishability Variability 50

Figure 2-8a: Characteristics of Service Retailing Intangibility No patent protection possible Difficult to display/communicate service benefits Quality judgment is subjective Some services involve performances/experiences 51

Figure 2-8b: Characteristics of Service Retailing Inseparability Consumer may be involved in service production Centralized mass production difficult Consumer loyalty may rest with employees 52

Figure 2-8c: Characteristics of Service Retailing Perishability Services cannot be inventoried Lost revenues from unsold services are lost forever Effects of seasonality can be severe Planning employee schedules can be complex Need to balance supply and demand (yield management pricing) 53

Figure 2-8d: Characteristics of Service Retailing Variability Standardization and quality control hard to achieve Customers may perceive variability even when it does not actually occur Need to industrialize/mechanize/service blueprint services to factor out variability 54

Figure A2-1: Lessons in Service Retailing 55

Technology Icons 56

Examples of Consumerism in Retailing Proper testing of items for safety issues Programming cash registers not to accept payment for recalled goods Charging fair prices for goods in short supply--Home Depot plywood example in hurricane Age labeling of toys, warning labels on goods beyond legal requirements

Store Sale 58

Understanding the Americans with Disabilities Act 59

CHAPTER 3:STRATEGIC PLANNING IN RETAILING

Chapter Objectives To show the value of strategic planning for all types of retailers To explain the steps in strategic planning for retailers: situation analysis, objectives, identification of consumers, overall strategy, specific activities, control, and feedback

Chapter Objectives (cont.) To examine the individual elements of a retail strategy (both controllable and uncontrollable), and to present strategic planning as a series of integrated steps To demonstrate how a strategic plan can be prepared

Retail Strategy The overall plan or framework of action that guides a retailer One year in duration Outlines mission, goals, consumer market, overall and specific activities, and control mechanisms

Elements of a Retail Strategy Retail Strategy

Benefits of Strategic Retail Planning Provides thorough analysis of the requirements for doing business for different types of retailers Outlines retailer goals Allows retailer to determine how to differentiate itself from competitors Allows retailer to develop an offering that appeals to a group of customers Offers an analysis of the legal, economic, and competitive environment Provides for the coordination of firm’s total efforts Encourages anticipation and avoidance of crises

Organizational Mission Retailer’s commitment to a type of business and to a distinctive role in the marketplace.

Ownership and Management Alternatives Sole proprietorship is an unincorporated retail firm owned by one person A partnership is an unincorporated retail firm owned by two or more persons, each with a financial interest A corporation is a retail firm that is formally incorporated under state law; it is a legal entity apart from its officers

Figure 3-3: Checklist to Consider When Starting a New Business

Figure 3-4: Checklist for Purchasing an Existing Retail Business

Figure 3-5a: Selected Kinds of Retail Goods and Service Establishments Durable Goods Stores: Automotive group Furniture and appliances group Lumber, building, and hardware group Jewelry stores Nondurable Goods Stores: Apparel group Food group General merchandise group Gasoline service stations

Figure 3-5b: Selected Kinds of Retail Goods and Service Establishments Service Establishments (Personal): Laundry and dry cleaning Beauty/barber shops Funeral services Health-care services Service Establishments (Amusement): Movie theaters Bowling alleys Dance halls Golf courses Retail Mgt. 12e (c) 2013 Pearson Education, Inc. publishing as Prentice Hall

Figure 3-5c: Selected Kinds of Retail Goods and Service Establishments Service Establishments (Repair): Automobile repair Car washes Consumer electronics repair Appliance repairs Service Establishments (Hotel): Hotels Motels Trailer parks Camps

by consumers and others. Image and Positioning An image represents how a given retailer is perceived by consumers and others.

Positioning Approaches Mass merchandising is a positioning approach whereby retailers offer a discount or value-oriented image, a wide or deep merchandise selection, and large store facilities. Niche retailing occurs when retailers identify specific customer segments and deploy unique strategies to address the desires of those segments rather than the mass market.

Figure 3-6: Niche Retailing by Babies “R” Us

Selected Retail Positioning Strategies

Target Market Selection Three techniques Mass marketing Concentrated marketing Differentiated marketing

La Boqueria

Strategic Implications of Target Market Techniques Retailer’s location Goods and service mix Promotion efforts Price orientation Strategy

Developing an Overall Retail Strategy Uncontrollable Variables: Consumers Competition Technology Economic conditions Seasonality Legal restrictions Controllable Variables: Store location Managing business Merchandise management and pricing Communicating with customer Retail Strategy

Retail Strategy– Low Costs Removal of bad costs Use of private label products to reduce costs of national/manufacturer brands Reduce product proliferation Obtain best net price instead of focus on promotional monies, trade incentives and forward buying

Retail Strategy– Low Costs (cont.) Supply chain initiatives Low promotional expense (everyday low pricing) Proper employee utilization

Retail Strategy--Differentiation Well-thought out private labels (Trader Joe’s, Target, King Arthur flour, etc.) Hiring right employees (value-profit chain) Empowering employees Use of a fun atmosphere “Little things that mean a lot” Money-back guarantees

Legal Environment and Retailing Store Location zoning laws blue laws environmental laws direct selling laws local ordinances leases and mortgages Managing the Business licensing provisions personnel laws antitrust laws franchise agreements business taxes recycling laws

Legal Environment and Retailing Merchandise Management and Pricing trademarks merchandise restrictions product liability laws and lemon laws sales taxes unit-pricing laws collusion laws sale prices price discrimination laws

Legal Environment and Retailing Communicating with the Customer truth-in-advertising and selling laws truth-in-credit laws telemarketing laws bait-and-switch laws inventory laws labeling laws cooling-off laws

Sample Strategic Plan Sally’s is a small, independently owned, high-fashion ladies clothing shop located in a suburban strip mall. It is a full-price, full-service store for fashion-forward shoppers. Sally’s carries sportswear from popular designers, has a personal shopper for busy executives, and has an on-premises tailor. The store is updating its strategic plan as a means of getting additional financing for an anticipated expansion. 87

Additional Concerns for Global Retailing In addition to the strategic planning process: assess your international potential get expert advice and counseling select your countries develop, implement, and review an international retailing strategy

Factors Affecting the Success of a Global Retailing Strategy Timing A balanced international program A growing middle class Matching concept to market Solo or partnering Store location and facilities Product selection

Factors to Consider When Engaging in Global Retailing