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

2. Questions What trends shape today’s retailers?
What are the different types of retailers?
How do retailers differ in terms of how they meet the needs of their customers?
How do service retailers differ from merchandise retailers?
What are the types of ownership for retail firms?

3. 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

4. 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.

5. Different Retail Mixes
Merchandise: variety (breadth)
Assortment (depth)
Services
Store design, visual merchandising
Location
Pricing

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

7. 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)

8. Food Retailers Supermarkets Supercenters Warehouse Clubs
Channel preference for food shopping channel where grocery purchasers do most of their food shopping
Supermarkets
Supercenters
Warehouse Clubs
Convenience Stores

9. Characteristics of Food Retailers

10. Supermarkets Conventional supermarkets
30,000 SKU
Limited assortment supermarkets (extreme value food retailers)
2000 SKU
Offer one or two brands and sizes
Designed to maximize efficiency and reduce costs
Offer merchandise at 40-60% lower prices than conventional supermarkets
Save-A-Lot, ALDI (German’s Wal-Mart)

11. ALDI: German’s Wal-Mart
ALDI provides quality merchandise at low prices by reducing its assortment in order to control store operating expenses

12. ALDI’s Strategy
4,100 stores in Germany and 6,600 worldwide, including 800 stores in 26 US states
Cheap..
Only two brands of toilet paper and one brand of pickles
STRATEGY:
Stores sell less products
ALDI exclusive label
High quality of products at cheaper prices
HOW?
Strong control over quality and price
Simplify shipping and handling
Reduce labor costs by keeping limited store staff, etc.

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

14. Conventional Supermarket Survival Pack
Emphasize Fresh Perishables
Wegmans
Target health conscious and ethnic consumers
Provide a better in-store experience
Offer more private label brands
Chef-crafted meals on the go at EatZi’s

15. Supercenters and Warehouse Clubs
The fastest growing retail category
Large stores (150,000 – 220,000 square feet) that combine a supermarket with a full-line discount store
One-stop shopping experience
Offer a limited and irregular assortment of food and general merchandise with little service at low prices
Use low-locations, inexpensive store design, little customer service
Low inventory holding costs by carrying a limited assortment of fast selling items

16. Convenience Store Tailors assortments to local market
Makes more convenient to shop
Offers fresh, healthy food
Fast, casual restaurants
Financial services available
Opening smaller stores closer to consumers (like airports)

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

18. 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

19. Department Stores: 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

20. 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
McGraw-Hill Companies, Inc./Gary He, photographer

21. 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

22. Specialty Store Retailers
McGraw-Hill Companies, Inc./Andrew Resek, Photographer

23. 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

24. 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

25. Category Specialists Sephora, France’s leading perfume/cosmetic chain
LVMH’s division

26. 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

27. 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

28. Types of Non-store Retailers

29. Electronic Retailing
Many retailers operate from virtual storefronts on the World Wide Web, usually maintaining little or no inventory, ordering directly from vendors to fill customer orders
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

30. What are Amazon and eBay?
– 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. Merchandise/Service Continuum

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

38. Retailers Using Franchise Business Model

39. 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

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

41. Reasons for Franchising Failure
Inept management
Fraudulent activities
Market saturation

42. 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.

43. 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.

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