RETAILING. Walton s.5 &.10. Irwin/McGraw-Hill. Irwin/McGraw-Hill. MARKETING, 6/e BERKOWITZ KERIN HARTLEY RUDELIUS

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1 C H A P T E R E I G H T E E N RETAILING Walton s.5 &.10

2 AFTER READING THIS CHAPTER YOU SHOULD BE ABLE TO: Identify retailers in terms of the utilities they provide. Explain the alternative ways to classify retail outlets. Understand the many methods of non-store retailing. Classify retailers in terms of the retail positioning matrix. Develop retailing mix strategies over the life cycle of a retail store.

3 PP18-AA Lowest Prices on Earth!! Buy.com is an online retail business that sells consumer products at or below cost. The company s goal is to become the name all buyers associate with low price. How does Buy.com make up the deficit? By selling advertising space on its Web site. Presently, the company is growing at a rate that will make it the fastest growing company in U.S. history. Can a business survive with a strategy based on only having the lowest price?

4 PP18-BB Definition of Retailing Retailing includes.... all activities involved in in selling, renting, and providing goods and services to to ultimate customers for personal, family or or household use. In In the channel of of distribution, retailing is is where the customer meets the product. It It is is through retailing that exchange occurs.

5 PP18-CC Retailing Creates Value Retailing s economic value is represented by: 1. People employed in retailing, and 2. The total amount of money exchanged in retail sales. Utilities provided by retailers create value for customers. Time, place, possession, and form utilities are offered by most retailers.

6 PP Which Company Best Represents Which Utilities? Wells Fargo Saturn Levi Strauss One of the best-run banks in the United States, Wells Fargo is intensifying it s drive to reach retail customers by opening minibanks in supermarkets. This new form of banking is designed to complement ATMs, which already dispense 75% of the bank s cash. Saturn dealers have adopted a one-price strategy that eliminates the need for negotiating. Instead, all customers are offered the same price. Test drives, financing, trade-ins, and leasing are all offered to encourage customers to purchase a Saturn. Levi Strauss & Co. now offers the Levi s Original Spin program which allows customers to create their own jeans by selecting from three models, five leg types, two flys, and many color and fabric options. The jeans are delivered in 2 to 3 weeks for $55. Toys R Us A distinctive toy store with a backwards R, this company is what every kid dreams about. Walking into a Toys R Us store is like living under a Christmas tree. Unlike most stores, which reduce their space allotted to toys after the holiday season, a huge selection of toys is always available at Toys R Us. Can you match them? Time Place Possession Form

7 PP18-A A The Largest Retailers Category Department stores Apparel Consumer Electronics Drug and and Discount Home Improvement Home Shopping Specialty Retailers Retailer(s) Sears J C Penney Limited TJX TJX Circuit City City Best Best Buy Buy Wal-Mart Kmart Home Depot Lowe s Service Merchandise Fingerhut Costco Toys R Us Us Sales ($, ($, in in billions)

8 PP18-DD Global Economic Impact of Retailing Four of the 25 largest businesses in the U.S. are retailers. In 1997, Wal-Mart s $119 billion in sales surpassed the gross domestic product of Finland for the same year. Sears, Wal-Mart, Kmart, and JCPenny together employ more than 1.6 million people. Wal-Mart has 603 stores outside the U.S., including joint ventures in China and Korea.

9 PP Retail Sales By Type of Business Automotive dealers Food stores General merchandise group Eating and drinking places Gasoline service stations Building material, hardware, etc. Furniture and home furnishings stores Apparel and accessory stores Drug and proprietary stores Liquor stores Other Sales ($billions)

10 PP18-EE Concept Check 1. When Levi Strauss makes jeans cut to a customer s exact preferences and measurements, what utility is provided? 2. Two measures of the importance of retailing in the global economy are and.

11 PP18-FF Classifying Retail Outlets Retail outlets can be classified in several ways: -- Form of ownership. Who owns the outlet. -- Level of service. The degree of service provided to the customer. -- Merchandise line. How many different types of products a store carries and in what assortment.

12 PP Classifying retail outlets METHOD OF CLASSIFICATION Form of ownership Level of service Merchandise line DESCRIPTION OF RETAIL OUTLET Independent retailer Corporate chain Contractual system Retailer-sponsored cooperative Wholesaler-sponsored voluntary chain Franchise Self-service Limited service Full-service Depth Single line Limited line Breadth General merchandise Scrambled merchandise

13 PP The possibilities and costs of franchising FRANCHISE TYPE OF BUSINESS TOTAL START-UP COSTS NUMBER OF FRANCHISES McDonald s Fast-food restaurant $385,000-$520,000 19,500 Merry Maids Cleaning Service $27,500-$40, Jiffy Lube Automobile fluid service $208,000-$229, Mail Boxes Etc. Postal Services $55,000-$75,000 2,953 Duds N Suds Laundry and snack bar $60, Radio Shack Electronic accessories $67,500 1,934 Barbizon School of Modeling $69,500-$124,000 65

14 PP18-GG Depth and Breadth of Product Line Depth of product line means that the store carries a large assortment of each item, such as shoe stores that offer running shoes, dress shoes, and children s shoes. Breadth of product line refers to the variety of different items a store carries. -- scrambled merchandising refers to retailers that offer several unrelated product lines in a single store. -- hypermarkets are very large retail outlets that have the goal of offering customers everything at one outlet. -- Supercenters are retailers that combine a typical merchandise store with a grocery store.

15 PP Breadth vs. Depth of Merchandise Lines Breadth: Number of different product lines Shoes Appliances CDs Men s Clothing Depth: Number of items within each product line Nike running shoes Florsheim dress shoes Top Sider boat shoes Adidas tennis shoes Amana refrigerator Sony TV sets JVC videocassette recorders General Electric dishwashers Sharp microwave ovens Classical Rock Jazz Country Western Suits Ties Jackets Overcoats Socks Shirts

16 PP Differences in Store Concepts DISCOUNT STORE SUPERCENTER HYPERMARKET Average size 70, , ,000 (in square feet) Number of employees Annual Sales $10-$20 $20-$50 $75-$100 ($ millions per store) Gross margin 18%-19% 15%-16% 7%-8% Number of items stocked 60,000-80, ,000 60,000-70,000

17 PP18-HH Concept Check 1. Centralized decision-making and purchasing are an advantage of ownership. 2. What are some examples of new forms of self-service retailers? 3. Would a shop for big men s clothes carrying pants in sizes 40 to 60 have a broad or deep product line?

18 Active customer involvement PP Forms of Non-store Retailing High Low Low Automatic vending Direct mail and catalogs Television home shopping On-line retailing Active retailer involvement Telemarketing Direct selling High

19 PP18-II Automatic Vending Nonstore retailing that makes it possible to serve customers where stores cannot. Maintenance and operating costs are high. Small convenience products are available in vending machines. Of the 3 million vending machines now in use, 1.8 million are soft drink machines.

20 PP18-JJ Direct Mail & Catalogs Marketing efficiency is improved through segmentation and targeting. Customer value is enhance by providing a fast and convenient means of making a purchase. In 1998 Americans increased their catalog spending to $87 billion. A typical household receives 50 catalogs each year.

21 PP18-KK Television Home Shopping TV home shopping is possible when consumers watch a shopping channel on which products are displayed; orders are placed over the telephone. Two popular home shopping programs reach 60 million homes and have combined sales of $2 billion. TV home shopping programs traditionally attract year old females. Limitations of TV shopping have been the lack of buyer-seller interaction and the inability of consumers to control the items they see.

22 PP18-LL Online Retailing Online retailing allows consumers to search for, evaluate, and order products through the Internet. The advantages of online retailing are: ability to comparison shop privacy variety Forecasts suggest that current annual sales of $10 billion could reach $100 billion in just a few years.

23 PP18-MM Telemarketing Telemarketing involves using the telephone to interact with and sell directly to consumers. According to the American Telemarketing Association, telemarketing sales exceed $500 billion. As the use of telemarketing grows, consumer privacy has become a topic of discussion among consumers, Congress, the Federal Trade Commission, and businesses.

24 PP18-NN Direct Selling Direct selling involves direct sales of goods and services to consumers through personal interactions and demonstrations in their home or office. Industry sales are more than $16 billion, but are declining in the U.S. as retail chains begin to carry similar products at discount prices, and the increasing number of dual-career households reduces the number of potential buyers at home. Many direct selling retailers are expanding into international markets to offset the decline in domestic sales.

25 PP18-OO Concept Check 1. Successful catalog retailers often send catalogs to markets identified in their databases. 2. How are retailers increasing consumer interest and involvement in online retailing? 3. Where are direct-selling retail sales growing? Why?

26 PP18-PP Retail Positioning Matrix The retail positioning matrix positions retail outlets on two dimensions: breadth of product line and value added. Breadth of product line is the range of products sold through each outlet. Value added includes such elements as location, product reliability, and/or prestige.

27 PP Retail Positioning Matrix Broad Kmart Bloomingdale s Breadth of product line Just for Feet Tiffany Narrow Low Value added High

28 PP18-QQ Key to Retail Positioning For a store to be successfully positioned, it must have an identity which has some advantages over competitors, and at the same time are recognized and valued by consumers.

29 PP18-RR The Retailing Mix The retailing mix includes: 1. Goods and services 2. Physical distribution 3. Communications tactics chosen by a store.

30 PP The Retailing Mix Store location Distribution centers Warehousing Transportation Handling goods Packing Personal selling Advertising Window displays Internal displays Public relations Store layout Catalogs Telephone sales Consumers Variety and assortment Sales assistance Customer services Pricing Credit Guarantees and exchanges Alterations and adjustments Store image and atmosphere Parking Delivery

31 PP18-F F Implications of the Retail Positioning Mix Types of Retailers High Value-added/ Broad Line (Bloomingdales) Low Value-added/ broad line (Kmart) High Value-added/ narrow line (Tiffany) Low Value-added narrow line (Just for Feet) Keys to Success Creative merchandising image-- excitement, leader High price/high margin Store Ambiance Economies of scale--volume Image-- good guys, conveniences Low price/low margin Low or self-service Efficiency of operations Unique of high quality products Image--exclusive specialty High price/high margin Personal service/advice Expensive presentation Specialty mass merchandising Image--value conscious, consistent Low price, loss leaders Little or self-service Cookie-cutter stores

32 PP18-SSa Retail Pricing Terminology Markup refers to how much should be added to the cost the retailer paid for the product to reach a final selling price. Original markup is the difference between the retailer s original cost and initial selling price. The maintained markup is the difference between the final selling price and retailer cost and is also the gross margin.

33 PP18-SSb Retail Pricing Terminology Markdown occurs when the product does not sell at the original price and an adjustment is necessary. Shrinkage is theft of merchandise by customers and employees. Off-price retailing involves selling brand name merchandise at lower than regular prices. The difference between the off-price retailer and a discount store is that off-price merchandise is bought by the retailer from manufacturers excess inventory at prices below wholesale prices.

34 PP18-TT Store Location Types of Store Locations Central business district regional shopping centers community shopping centers strip location power center

35 PP18-UU Concept Check 1. What are the two dimensions of the retail positioning matrix? 2. How does original markup differ from maintained markup? 3. A huge shopping strip with multiple anchor stores is a center.

36 PP The Wheel of Retailing As more time passes, outlet adds still more services As time passes, outlet adds services Outlet Outlet now now has: has: Higher Higher prices prices Higher Higher margins margins Higher Higher status status Outlet Outlet starts starts with: with: Low Low prices prices Low Low margins margins Low Low status status Passage of time Outlet Outlet now now has: has: Still Still higher higher prices prices Still Still higher higher margins margins Still Still higher higher status status New New form form of of outlet outlet enters enters retailing retailing environment environment with with characteristics characteristics of of outlet outlet in in Box Box 11

37 PP The Retail Life Cycle Market share or profit Value-retail stores On-line retailers Single-brand stores Single-price stores Factory outlet stores Warehouse clubs Fast food outlets Convenience stores Supermarkets Department stores Market share Profit Malls (?) Catalog Retailers General store Early growth Accelerated development Maturity Decline

38 PP18-VV Future Changes in Retailing Impact of Technology Changing Shopping Behavior Importance of Brands

39 PP18-WW Concept Check 1. According to the wheel of retailing, when a new retail form appears, how would you characterize it s image? 2. Market share is usually fought out before the stage of the retail life cycle. 3. What is a smart card?