Types of Retailers Chapter 2 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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

Merchandise Offering Variety (breadth of merchandise): wide vs. narrow - The number of merchandise categories Assortment (depth of merchandise): deep vs. shallow -the number of items in a category (SKUs)

Variety and Assortment of Kayaks in Different Retail Outlets

Characteristics of Food Retailers

Trends in Supermarket Retailing Competition from Discount Stores Changing Consumption Patterns Efficient Distribution Lower Costs Lower Prices Time Pressure Eating Out More Meal Solutions

Save-A-Lot Save-A-Lot’s limited assortment format means that stores carry the most frequently purchased grocery items in the most popular size and variety The company carries high quality exclusive brands – many produced by the same manufacturers of leading name brands – and an assortment of nationally branded items. This allows Save-A-Lot to offer savings of up to 40% compared to conventional grocery stores – without asking shoppers to sacrifice quality.

Characteristics of General Merchandise Retailers

Three Tiers of Department Stores First Tier: Upscale, high fashion chains with exclusive designer merchandise and excellent customer service Nordstrom, Neiman Marcus, Saks Second Tier: Retailers sell more modestly priced merchandise with less customer service Macy’s Third Tier: Value oriented caters to more price conscious customer JCPenney, Sears, Kohl’s

Issues in Department Store Retailing 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

Issues in Discount Store Retailing Only Big Left Wal-Mart, 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

Issues in Specialty Store Retailing Mall-Based Apparel Retailers Decline in Mall Shopping and Apparel Sales -Lack of New Fashions -Less Interest in Fashion -Increased Price Consciousness Lifestyle Formats – Abercrombie and Fitch Hot Topics McGraw-Hill Companies, Inc./Andrew Resek, Photographer

Issues in Drug Store Retailing Consolidation – Walgreens, CVS, Rite-Aid Competition from Supermarkets, discount Stores and mail-in orders Evolution to a New Format -Stand Alone Sites with Drive Thru Windows -offering more frequent purchase food items Improved systems provide personalized service in the pharmacy

Category Specialists Deep and Narrow Assortments Destination Stores Category killers Low Price and Service Wholesaling to Business Customers and Retailing to Consumers Incredible Growth Bass Pro Shops

Category Specialists: Home Improvement Centers Home Depot and Lowes act as both: Retailer and Wholesaler Consumer Business

Issues in Extreme Value Retailing Focuses on Lower Income Consumers Names mostly imply good value not $1 price points Low Cost Location Limited Services One of the Fastest Growing Retail Segments Dollar Tree Family Dollar Dollar General 99 Cents Only Store

Off-Price Retailers Close-out retailers Offer an inconsistent assortment of brand name merchandise at low prices TJX companies (T.J. Maxx, Marshalls. HomeGoods) Ross Stores, Burlington Coat factory, Big Lots, Tuesday Morning

Types of Non-store Retailers

What are Amazon and eBay? http://www.Amazon.com – Merchandise to consumers. Provides website development and fulfillment services to other retailers eBay – Acts as a mall or other shopping center providing a “place” for buyers and sellers to meet Don Farrall/Getty Images

Issues in Catalog Retailing Low Start Up Cost Evolution of Multi-Channel Offering Hard to compete with large well established firms Increasing Mail Costs Clutter from other Catalogs General merchandise catalogs like JC Penney Specialty Catalogs like Victoria Secret

Issues in Direct Selling Completely bypasses retailers and wholesalers Manufacturers set up their own channels to sell their products directly to consumers Party plan system: merchandise is demonstrated in a party atmosphere Multi-level network: Master distributors sell to distributors who sell merchandise Pyramid schemes: Firm sells to other distributors and little if any merchandise goes to end users

Issues in Television Home Shopping Consumers watch cable stations, infomercials or direct response ads Few consumers watch regularly Most purchases made by small proportion of viewers Customers can’t examine merchandise Customers must wait for merchandise to come on Sells predominately jewelry, apparel, cosmetics, kitchenware, and exercise equipment

Issues in Vending Machine Retailing Automatic Merchandising About $25 billion worth of convenience goods are sold to Americans through 4.7 million vending machines Sales growth has been declining due to higher prices and healthier eating habits New technology may help sales growth Trend of placing machines in captive consumer locations

Merchandise/Service Continuum

Services vs. Merchandise Retailers 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

Types of Retail Ownership Independent, Single Store Establishments Wholesale-sponsored voluntary group Corporate Retail Chains Franchises (c) Brand X Pictures/PunchStock

Franchisor Advantages/Disadvantages 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.

Franchisee Advantages/Disadvantages 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.