5 th Edition

McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Types of Retailers

Introduction to Retailing Types of Retailers Multi-Channel Retailing Customer Buying Behavior

Growing Diversity of Formats Increasing Industry Concentration Globalization

 Category Specialists -PetsMart -Bed, Bath and Beyond - Michaels  CarMax and Auto Nation  Wal-Mart Supercenters -Supermarket + Discount Store  Ebay, Priceline, Travelocity

Drug Stores Walgreens, CVS, Rite-Aid and Eckerds 53% of sales 85% of sales Discount Stores Wal-Mart, Target and Kmart

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

 Variety (breadth of merchandise) - The number of merchandise categories Assortment (depth of merchandise) -the number of items in a category (SKUs)

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

Outlet% ShoppingNumber of Weekly Weekly TripsSpending Supermarkets $ General merchandise discount stores Fast-food restaurants Drug stores Convenience stores Wholesale clubs Specialty food stores Source: “Consumers Are Skeptical Again,” “63rd Annual Report of the Grocery Industry,” Progressive Grocer, April 1996, p.42. Shopping Patterns by Types of Retail Outlets

Mom and Pops – Supermarkets -Cars, highways and TV to build brands -Knowledgeable customers – self service -Perishable vs. packaged goods Big Box Retailers -Warehouse Clubs -Supercenters -Hypermarkets Convenience Stores

Competition from Discount Stores Changing Consumption Patterns Efficient Distribution Lower Costs Lower Prices Time PressureEating Out MoreMeal Solutions

 Discount Stores  Specialty Stores  Category Specialists  Home Improvement Centers  Department Stores  Drugstores  Off-Price retailers  Value Retailers

 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

Mall-Based Apparel Retailers : Decline in Mall Shopping and Apparel Sales -Lack of New Fashions -Less Interest in Fashion -Increase Price Consciousness Lifestyle Formats – Banana Republic and Hot Topics

Deep and Narrow Assortments – Destination Stores Low Price and Service Wholesaling to Business Customers and Retailing to Consumers Incredible Growth Increased Competition with National Expansion and Consolidation

 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

Consolidation – Walgreens, CVS, Rite-Aid, Eckerds Competition from Supermarkets and Discount Stores – Pharmaceuticals Evolution to a New Format -Stand Alone Sites with Drive Thru Windows -Convenient Store Front End

 Opportunistic Buying  Hurt By Sales in Department Stores  Buying First Line Merchandise

Target Lower Income Families Low Cost Low Prices -Low Cost Location -Limited Services One of the Fastest Growing Retail Segments

Many New Types of retailers, Increased Diversity to Meet Diverse Needs Most People Shop at All Types Depending on Situations – Growth in Cross-Shopping

Electronic Retailing Catalog and Direct Mail Direct Selling Television Home Shopping Vending Machines

2005

 Low Start Up Cost  Evolution of Multi-Channel Offering - Electronic Channel, Stores  Increasing Mail Costs  Clutter from other Catalogs

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 Banks Citibank, NCNB, Bank of America 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 Fitness Jazzercise, Bally’s, Gold’s Gym Health Care Humana, HCA Home maintenance Chemlawn, MiniMaid, Roto-Rooter Examples of Service Retailers

Type of Service Service Retail Firms Hotels and motels Hyatt, Sheraton, Marriott, Days Inn Income tax preparation H & R Block Insurance Allstate, State Farm Internet access/Elec info. American On-Line, CompuServe Long-distance telephone AT&T, MCI, Sprint Movie theaters AMC, Loews/Sony, Universal Real estate Century 21, Coldwell Banker Restaurants TGI Friday’s, Wendy’s, Pizza Hut Truck rentals U-Haul, Ryder Weight loss Weight Watchers, Jenny Craig Video rental Blockbuster Vision centers Lenscrafter, Pearle

Types of Retail Ownership Independent, Single Store Establishments Consumer Owned Cooperatives Wholesaler Owned Cooperatives Corporate Chains Franchises

Concentration on One Format Growth in Services Franchising

30 – 40% of US Retail Sales Franchisee Pays Fixed Fee Plus % of Sales Franchisee Implements Program Why is This Ownership Format Efficient?

Technological advances Profitable utilization of capital resources Attainment of the “American Dream” Demographic expansion Product/service consistency

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

Inept management Fraudulent activities Market saturation

Manufacturer - retailer Manufacturer - wholesaler Wholesaler - retailer Service sponsor - retailer

Continuous market Market information Money Sales of products Rental and lease fees License fees Management fees Royalty fees

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.

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.

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.

Sustained growth Enduring plus un-imagined applications International expansion Increasing tensions Greater emphasis on financial returns

CYCLICAL THEORIES Wheel of retailing (price/service) Accordion Theory (assortment) EVOLUTIONARY THEORIES Dialectic process (retailer) Natural selection (customer)

Department store High margin Low turnover High price Full service Downtown location Plush facilities THESIS ANTITHESIS SYNTHESIS Source: Reprinted with the permission of Macmillan College Publishing Company from Retailing, 4 th Edition, by Dale M. Lewison. Copyright © 1991 by Macmillan College Publishing Company, Inc. Discount store Low margin High turnover Low price Self-service Low rent location Spartan facilities Discount department store Average margins Average turnover Moderate prices Limited services Suburban locations Modest facilities