CHAPTER 1: AN INTRODUCTION TO RETAILING

Chapter Objectives To define retailing, consider it from different perspectives, demonstrate its impact, and note its special characteristics To introduce the concept of strategic planning and apply it To show why the retailing concept is the foundation of a successful business, with an emphasis on the total retail experience, customer service, and relationship retailing To indicate the focus and format of the text

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.

Figure 1-1: Subway

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)

Figure 1-9: “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

Figure 1-11: 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

Figure 1-12: 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

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