Retailing Chapter 13 with Duane Weaver

RETAILING (defined) …consists of the activities involved in selling goods and services to ultimate (end) consumers for personal consumption. a.k.a. the buyer is the final/ultimate consumer vs. a business or institutional buyer This distinction from wholesaling is critical to understanding buying motives that define market segments.

RETAIL POSITIONING STRATEGY Choosing a positioning strategy is key to retail competitiveness and performance Choosing: Evaluate demand vs. cost-side factors Cost: margins and inventory turns Demand: service outputs

Retail Positioning – Cost Side: Margin and Inventory Turns Traditional: High margin, low turn, numerous services (Segmentation IMPACT?) Modern: Low margin, high turn, minimal service (Segmentation IMPACT?) Current Efficiency: follow Modern Model with such high volumes they can cost justify adding additional services back into the schema (Segmentation IMPACT?)

Retail Positioning – Cost Side: Metrics SPM – Strategic Profit Model Margin Management: net profit-net sales Asset Turnover: net sales-total assets (where net sales = Gross sales less returns and allowances) Financial Management: total assets-net worth If market pressure is downward on margins then managers may focus on Asset turn.

Retail Positioning – Cost Side: Metrics (cont’d) GMROI: Gross Margin return on inventory investment E.G.: p. 397 Products with different margins may have the same GMROI GMROL: Gross Margin Return On Labour Gross Margin per fulltime equivalent employee This approach realizes that increases in sales people will reduce sales per person, but may increase profitability as overhead cost is allocated broader. GMROS: Gross Margin Return On Square footage Gross Margin Return per square foot Focuses on traditionally unique and high cost asset of retailing (shelf space, window space, and floor space)

Retail Positioning – Cost Side: Metrics (cont’d) Channel Impacts: Retail use of GMROI pressures suppliers to: 1. Obtain high GMs on their brands 2. Sales Volumes their brands permit 3. Footprint of their brand (ft 2 ) 4. Extra brand/product specific costs such as storing and handling (refrigeration, special waste packaging, etc.)

Retail Positioning – Demand Side: “ THE CHOICE OF SERVICE OUTPUTS PROVIDED DISTINGUISHES THE ATTRACTIVENESS OF A PARTICULAR PRODUCT TO THE MARKET PLACE” …it solidifies the segmentation strategy relative to the cost side (value/price…profit/value segment) Bulk-Breaking – warehouse type retailers (low price but buy bulk) Spatial Convenience – specialty products less important, convenience goods need high spatial convenience Wait & Delivery Time – patience varies between consumers and within one consumer between purchase occasions Variety – Variety (breadth of product lines) vs. Assortment (depth of product brands or models available) Discounters (Mass marketers) have low variety of low priced fast movers whereas High-End Specialty Stores (Niche marketers) products are typically stocked with a large line of products and choices Customer Service – retailing still tends to be highly labour intensive (30% of costs on average)…differentiation through customer service initiatives

Taxonomy of Retailers Let’s look at Table 13.4 on p. 404 for an overview of the multitude of differentiations available to the retailer. Note the significant of understanding the target market and the importance of having the ability to assess, manage and establish your distribution channels. GROUP EXERCISE: For each retailer type, describe at least one significant change in their distribution channel that could drastically impact their strategy/market positioning?

STRATEGIC ISSUES IN RETAILING Importance of Convenience to Consumers – measured by the time required to make a purchase Increased Power of Retailers – 1. need for price level competition by retailers, 2. consolidation of retail outlets, 3. increased marketing pressures pushed up the chain for price breaks and merchandising support, 4. Product SKU choice allows retailer to focus on self-preservation over supplier relationship, 5. Technology enables retailers to target consumer purchases on a one to one basis rather than mass market promotions offered by manufacturers. Broadened Role and Impact of “PRIVATE BRANDING” – 1. store name i.d. programs, 2. retails brand-name i.d, 3. designer-exclusive, and 4. other exclusive licensed-name. Allows for exclusivity and avoiding direct price competition. Limits Supplier/Manufacture Brand building. Supplier Strategies re: Retail Power Growth – 1. take more channel flows or develop new channel technologies, 2. change the role of price promotion within marketing mix, 3. expand product line (low end as well), 4.channel refocus by redirecting non-marketing investments towards product development and marketing, 5. expand number of distribution channels (consumer management over category management) - PepsiCo.

STRATEGIC ISSUES IN RETAILING – cont’d. Category Killers (power retailing) – Characteristics :1. wiling to take risks via market testing and trend forecasting, 2. order early and sell in high volume, 3. invest large in info systems of broad geography, 4. commitment to delivering value to customer, 5. emphasis on customer service Enables: building of dominant assortments within a product category. Chapters, Home Depot, Toys “R” Us, etc. Retailing Polarity (Price vs. Quality) – Specialty stores like the GAP, The Body Shop, and Eddie Bauer (deep assortment, high-touch service, power retailers) vs. warehouse-style stores like Home Depot, IKEA, Kmart (price- oriented, volume driven, low staffing). Has squeezed out the Department Store “be all things to all people” model. Few left. Global Retailing – Pressure to globalize is restricted by: need for quality real estate locations, need to develop logistics in other countries, need to develop supplier relationships in new markets, differences in zoning, taxes, hours of operation, labour, and regulations Culturally sensitive packaging adjustments

THANKS Always be prepared for a quiz