5th Edition

Chapter 2 Types of Retailers McGraw-Hill/Irwin Levy/Weitz: Retailing Management, 5/e Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

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

Trends in Retailing Increasing Industry Concentration Growing Diversity of Formats Globalization

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

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

Globalization of Wal-Mart

Types of Retailers 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.

Classification by Type of Merchandise

Sales by Merchandise Category

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

Variety and Assortment of Bicycles

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

Shopping Patterns by Types of Retail Outlets Outlet % Shopping Number of Weekly Weekly Trips Spending Supermarkets 100 2.4 $ 72.82 General merchandise 68 1.3 32.53 discount stores Fast-food restaurants 65 1.9 16.32 Drug stores 39 1.2 18.70 Convenience stores 37 2.4 19.72 Wholesale clubs 27 1.7 75.12 Specialty food stores 9 1.0 23.70 Source: “Consumers Are Skeptical Again,” “63rd Annual Report of the Grocery Industry,” Progressive Grocer, April 1996, p.42.

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

Types of Food Retailers

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

Types of General Merchandise Retailers Discount Stores Specialty Stores Category Specialists Home Improvement Centers Department Stores Drugstores Off-Price retailers Value Retailers

Characteristics of General Merchandise Retailers

Issues in Discount Store Retailing 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

Issues in Specialty Store Retailing 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

Category Specialists 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

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 Drug Store Retailing 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

Issues in Off-Price Retailing Opportunistic Buying Hurt By Sales in Department Stores Buying First Line Merchandise

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

Non-store Retail Formats Electronic Retailing Catalog and Direct Mail Direct Selling Television Home Shopping Vending Machines

Types of Nonstore Retailers

Sales by Non-store Format 2005

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

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

Examples of Service Retailers 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

Merchandise/Service Continuum

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

Trends in Ownership Concentration on One Format Growth in Services Franchising

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

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

Types of Franchise Systems Territorial Operating Mobile Distributorship Co-ownership Co-management Leasing/Licensing Manufacturing Service

Reasons for Franchising Failure Inept management Fraudulent activities Market saturation

Franchisor Positions in the Marketing Channel Manufacturer - retailer Manufacturer - wholesaler Wholesaler - retailer Service sponsor - retailer

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

Franchisee Benefits 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.

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.

Franchising Trends for the New Millennium Sustained growth Enduring plus un-imagined applications International expansion Increasing tensions Greater emphasis on financial returns

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

Wheel of Retailing

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