Chapter 2 Types of Retailers

The World of Retailing Increasing Industry Concentration Growing Diversity of Formats Globalization

General Trends in Retailing New Types of Retailers Increased Concentration Globalization Growth In Services Retailer Demise of Pure Electronic Retailers (Webvan, eToys, etc) Growth in Use of Multi-Channel Retailing by Traditional Retailers Increase Use of Technology to Reduce Cost, Increase Value Delivered

Merchandise Offering Variety (breadth of merchandise) The number of merchandise categories Assortment (depth of merchandise) The number of items in a category (SKUs) Jack Star/PhotoLink/Getty Images C Squared Studios/Getty Images Stockbyte/Punchstock Images Royalty-Free/CORBIS Royalty-Free/CORBIS Royalty-Free/CORBIS Royalty-Free/CORBIS

Variety and Assortment of Bicycles

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

NAICS Codes for Retailers

Food Retailers Primary Shopping Format for Food Sales Growth Rates by Retail Format

Globalization of Wal-Mart

Characteristics of Food Retailers

Limited Assortment Supermarkets 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. Used by permission of Save-A-Lot

Conventional Supermarket Survival Pack Emphasize Fresh Perishables Target health conscious and ethnic consumers Provide a better in-store experience Offer more private label brands

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

Convenience Stores Fight Competition Tailors associates to local market Stores are more convenient to shop Offers fresh food Fast, casual restaurants Financial services available Opening smaller stores closer to consumers – like airports

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 Department Stores Specialty Stores Category Specialists Home Improvement Centers Discount Stores Drugstores Off-Price retailers Extreme Value Retailers

Characteristics of General Merchandise Retailers

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

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

What To Do With an Eroding Market To deal with an eroding market Department stores are: attempting to increase the amount of exclusive merchandise they sell undertaking marketing campaigns to develop strong images for their stores and brands building better relationships with their key customers Royalty-Free/CORBIS

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 McGraw-Hill Companies, Inc./Gary He, photographer

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 – Abercrombie and Fitch and Hot Topics McGraw-Hill Companies, Inc./Gary He, 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 Keith Brofsky/Getty Images

Category Specialists Deep and Narrow Assortments Destination Stores Low Price and Service Wholesaling to Business Customers and Retailing to Consumers Incredible Growth Ryan McVay/Getty Images

Issues in Home Improvement Centers Home Depot and Lowes act as both: Retailer and Wholesaler Consumer Business

Home Improvement Centers Displays are warehoused Customer Service: How to select and how to use merchandise Competition focuses on price, effort to differentiate and services provided Ryan McVay/Getty Images

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 Stockbyte/Punchstock Images

Non-store Retail Formats Electronic Retailing Catalog and Direct Mail Direct Selling Television Home Shopping Vending Machines Royalty-Free/CORBIS Ryan McVay/Getty Images

Electronic Retailing History of frenzied investments and false predictions of retail dominance Primarily used by traditional retailers to compliment store and catalog offerings Exclusive e-tailers target small and dispersed niche markets Randy Allbritton/Getty Images

What are Amazon and eBay? 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 JC Whitney, Victoria Secret

Issues in Direct Selling Providing information and demonstrations is costly 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 mostly jewelry, apparel, cosmetics, kitchenware, exercise equipment Royalty-Free/CORBIS

Issues in Vending Machine Retailing Sales growth has been declining due to higher prices and healthier eating habits New technology may help sales growth Vending machines are beginning to accept credit Trend of placing machines in captive consumer locations Ryan McVay/Getty Images

Types of Nonstore Retailers

Sales by Catalog Retailers

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 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, Hollywood Video Vision centers Lenscrafter, Pearle

Merchandise/Service Continuum

Types of Retail Ownership Independent, Single Store Establishments Wholesaler Owned Cooperatives Corporate Chains Franchises (c) Brand X Pictures/PunchStock

Retailers Using Franchise Business Model

Franchising 30 – 40% of US Retail Sales Franchisee Pays Fixed Fee Plus % of Sales Franchisee Implements Program Why is This Ownership Format Efficient? The McGraw-Hill Companies, Inc./Jill Braaten, photographer

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 Millenium Sustained growth Enduring plus un-imagined applications International expansion Increasing tensions Greater emphasis on financial returns

Which Types of Retailers Will Be the First to Pursue Global Markets? Discount Stores Category Specialists Department Stores Supermarkets Services Retailers

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

Why Is the Retail Industry Becoming More Concentrated? Traditionally retailers have been local businesses. Why are bigger firms emerging? Why are least concentrated sectors food retailers and services retailers?