1. Introduction to the World of Retailing
Chapter 1
Introduction to the World of Retailing
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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

4. Questions What is retailing? What do retailers do?
Why is retailing important in our society?
What career and entrepreneurial opportunities does retailing offer?
What types of decisions do retail managers make?

5. What is Retailing?
Retailing – a set of business activities that adds value to the products and services sold to consumers for their personal or family use
A retailer is a business that sells products and/or services to consumers for personal or family use.

6. Examples of Retailers Retailers:
Kohl’s, Macy’s, Wendy’s, Amazon.com, Jiffy Lube, AMC Theaters, American Eagle Outfitter, Avon, J.Crew
Firms that are retailers and wholesalers - sell to other business as well as consumers:
Office Depot, The Home Depot, United Airlines, Bank of America, Costco

7. Manufacturer’s Perspective
The Four P’s of Marketing
Retailers are part of the
distribution channel
Retailers are part of the
distribution channel
Product
Price
Distribution
Promotion

8. Distribution Channel

9. Typical Supply Chain Network
Customers
Suppliers
Plants
retailers
Distribution
Centers
1-9

10. A Retailer’s Role in a Supply Chain
Retailers are the final business within a supply chain which links manufacturers to consumers.
A Supply Chain is a set of firms that make and deliver a given set of goods and services to the ultimate consumer.

11. Manufacturing, Wholesaling and Retailing
Vertical Integration – firm performs more than one set of activities in the channel
Ex: retailer invests in wholesaling or manufacturing
Backward Integration – retailer performs some distribution and manufacturing activities
Ex: JCPenney sells Arizona jeans (Private Label)
Forward Integration – manufacturers undertake retailing activities
Ex: Ralph Lauren (New York Jones, Liz Claiborne) operates its own stores
Large retailers engage in both wholesaling and retailing
Ex: Wal-Mart, Lowe’s, Safeway, Brown Shoe Company

12. Do Retailers Add Value? a box of crackers at a grocery store
costs $1 to manufacturer
sells at a price of $2
Example
Retailers add significantly to the prices consumers face
Why not buy directly from the manufacturer?
Does that mean that grocery stores are very profitable?

13. Why Not Get Rid of the Middlemen?
Price to Consumer
Price to Distributor
Price to Retailer
$2.00
$1.00
$1.20
$.15
$.85
$.70
Manufacturer
Vendor
Distributor
Wholesaler
Retailer
Consumer

14. Why Not Get Rid of the Middlemen?
Better services to customers
More efficient

15. Music Industry Channel
Composer
Lyricist
Record
Company
Publisher
Music Retailer
Distributor
Artist

16. Cost for CD 4 out of 5 CDs fail to make a profit
Retailer $5.00
Record Company
Manufacturing
Distribution
Marketing
Coop advertising
Artist/Repertoire
Artist royalty
Lyricist
Overhead/Profit
Total
4 out of 5 CDs fail to make a profit
$300,000 cost to prepare a CD for release
30,000 recording artists

17. How Retailers Add Value
Provide Assortment
Buy other products at the same time
Break Bulk
Buy it in quantities customers want
Hold Inventory
Buy it at a convenient place when you want it
Offer Services
See it before you buy; get credit; layaway
Ryan McVay/Getty Images

18. How Retailers Add Value
The value of the product and service
increases as the retailer performs functions.
Bicycle can be bought on credit or put on layaway
Bicycle is featured on floor display
Bicycle is offered in convenient locations in quantities of one
Bicycle is developed in several styles
Bicycle is developed at manufacturer

19. Examples: How Retailers Add Values
BagBorrowerSteal.com
jewelry and bag rental; Get (not buy, but borrow) exactly what you want
Home Depot
DIYer (Do-it-yourselfer); Learn how to do it yourself with in-store clinics and online workshops

20. Social and Economic Significance of Retailing
Retail Sales:
Over $4.1 trillion in annual U.S. sales in 2005
Employment:
Employs over 24 million people in 2005
One of the largest sectors for job growth in US
Social responsibility
Global player

21. Social responsibility
Corporate social responsibility
The voluntary actions taken by a company to address the ethical, social, and environmental impacts of its business operations, in addition to the concerns of its stakeholders
Examples: Edun - a fair-trade fashion brand by the U2 lead singer Bono
Starbucks: pays its farmers 42% more than the commodity price of Arabica coffee beans
Target: community giving programs (5% of income, $3 million a week)
Retail companies give away 1.7% of their profits, compared with about 0.9% for companies in other industries

22. World’s 20 Largest Retailers in 2005

23. Has the greatest retail density
Structure of Retailing and Distribution Channels around the World: The United States
The United States
CHINA
The nature of retailing and distribution channels in the U.S. is unique.
Has the greatest retail density
Has the greatest concentration of large retail firms
Large enough to operate their own warehouses, eliminating the need for wholesaling.
The combination of large stores and large firms result in a very efficient distribution system.

24. Comparison of Distribution Channels around the World

25. What have created these differences in distribution systems?
Social & Political Objectives
China, India: To reduce unemployment by protecting small businesses
EU: To protect small retailers
To preserve green spaces/town centers
Geography
Much lower population density in the US than in India, China, and EU (where less low-cost real estate are available for building large stores)
Market size
Large retail markets in US, India, China
Countries in EU – distribution channels and retail chains operate in a single country (no economy of scales to be achieved; trade barriers still exist)

26. Opportunities in Retailing: Management opportunities
People with a wide range of skills and interests needed because retailers’ functions include
Finance
Purchase
Accounting
Management information system (MIS)
Supply management including warehouse and distribution management
Design and new product development
Financially rewarding
5-year salary of buyers: $50,000 - $60,000
5-year salary of store managers: $120,000 - $160,000

27. Nature of Retail Industry is Changing
To Today’s Retailer
Mom and Pop Store

28. Retailers are a Business Like Manufacturers
Real Estate
Finance
Store Design
Promotion/Advertising
MIS
Loss Prevention
Operations
Human Resources
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

29. Retailing is a High Tech Industry
Selling Merchandise through the Internet
Using Internet to manage supply chains
Analyze POS data to tailor assortments to stores
Computer systems for merchandise planning and tracking

30. Opportunities in Retailing: Entrepreneurial opportunities
Wal-Mart: Sam Walton
Retailing provides opportunities for people who want to start their own business
Some of the world’s richest people are retailing entrepreneurs
Examples of retailing entrepreneurs
Sam Walton (Wal-Mart)
Jeff Bezos (Amazon.com)
Ingvar Kamprad (IKEA)
Anita Roddick (the Body Shop)
IKEA: Ingvar Kamprad

31. Career Opportunities in Retailing Start Your Own Business
List of Retail Entrepreneurs on Forbes 400 Richest Americans
Walton Family (Wal-Mart)
Fisher (The Gap)
Wexner (The Limited)
Menard (Menard’s)
Marcus (The Home Depot)
Kellogg (Kohl’s)
Schulze (Best Buy)
Levine (Family Dollar)
Gold (99Cent Only)

32. Retail Management Decision Process

33. Strategic Vs Tactical Decisions
Doing the Right Thing (direction) vs.
Doing Things Right (execution)
Strategic Decisions Are:
Made Infrequently
Long-term
Require significant investment
Not easily reversed
Location, Organization Design, Information and Distribution Systems, Customer Service

34. Retail Strategy Need to identify the competition intratype competition
(e.g., Dillard’s vs. JCPenney)
intertype competition
(e.g., Dillard’s vs. Wal-Mart)
Identifying customers
What are the significant demographic and life-style trends
Who are your target customers

35. Retail Strategy A retail strategy should identify the target market
the product and service mix
a long-term comparative advantage

36. JC Penney’s Strategic Evolution(1)
Main Street (small town) private label, soft goods (apparel, home furnishings), decentralized retailer
Changes in environment -- increased disposable income, growth of suburbs, interstate highway program
Emulate Sears in moving to enclosed suburban malls
Add hard goods (appliances, automotive)
Diversify – drug stores, insurance, specialty stores
Develop catalog channel

37. JC Penney’s Strategic Evolution(2)
Focus on department store format and soft goods develop electronic retail channel
Mid-market, mall based department store, between Wal-Mart/Target and Macy’s/Dillards
Competition from Target, Kohl’s
Centralization to reduce cost, increase responsiveness - centralized buying, warehouse delivery
Off the mall stores to increase customer convenience
Improving store atmospherics
Upgrading merchandise offering (e.g., Sephora, American Living by Polo Ralph Lauren)

38. Wal-Mart’s Strategic Evolution
Small Town - Discount Store selling hard goods and soft goods
limited service, efficient distribution
Enter suburban markets
Warehouse Clubs (Sam’s)
Supercenters
International Expansion
Supermarkets, neighborhood markets

39. Sears’ Strategic Evolution
Large number of merchandise categories -- appliances, hardware, apparel
Malls evolved into places for buying soft goods, hard goods sold at category killers
The Softer Side of Sears
Refocused on value -- Testing carts in stores
Acquired Lands’ End
Acquired by Kmart

40. Whole Foods Implementation
Strategy - organic and natural foods supermarket chain Assortment beyond organic/natural foods
Private labels - Whole Food™, 360 Day Value™
Love, trust, and employee empowerment
Equality in compensation

41. Decision Variables for Retailers
Customer Service
Retail
Strategy
Store Design and Display
Merchandise Assortment
Pricing
Location
Communication Mix

42. Store Design And Display Merchandise Assortment
Wal-Mart’s Retail Mix
Customer Service
Location
Retail Strategy
Store Design And Display
Merchandise Assortment
Communication Mix
Pricing

43. Merchandise Assortment
Wal-Mart’s Retail Mix
Location Strategy
Free-standing Stores
Customer Service
Merchandise Assortment
Pricing
Communication Mix
Store Display And Design

44. Store Design and Display
Wal-Mart’s Retail Mix
Assortment Strategy
Customer Service
Location
Large Number of Categories
Few Items in Each Category
Store Design and Display
Communication Mix
Pricing

45. Store Design and Display
Wal-Mart’s Retail Mix
Location
Communication Mix
Store Design and Display
Customer Service
Merchandise Assortment
Pricing Strategy
Low, EDLP

46. TV and Newspaper Insert Ads
Wal-Mart’s Retail Mix
Location
Pricing
Store Design and Display
Customer Service
Merchandise Assortment
Communication Mix
TV and Newspaper Insert Ads

47. Basic, Special Displays for Products
Wal-Mart’s Retail Mix
Store Design and Display
Customer Service
Location
Merchandise Assortments
Pricing
Communication Mix
Basic, Special Displays for Products

48. Merchandise Assortment
Wal-Mart’s Retail Mix
Customer Service
Limited
Location
Merchandise Assortment
Pricing
Communication Mix
Store Design and Display

49. Claire’s Retail Mix Customer Service Location Retail Strategy
Store Design
and Display
Merchandise
Assortment
Pricing
Communication Mix

50. Claire’s Retail Mix Location Strategy Enclosed malls Customer Service
Merchandise
Assortment
Pricing
Communication Mix
Store Display
And Design

51. Claire’s Retail Mix Assortment Strategy
Customer Service
Location
Jewelry, accessories and cosmetics for tweens and teens
Store Design
and Display
Communication Mix
Pricing

52. Claire’s Retail Mix Pricing Strategy Modest with Sales Location
Customer Service
Merchandise Assortment
Store Design
and Display
Communication Mix
Modest with Sales

53. Claire’s Retail Mix Communication Mix TV and Magazine Ads
Customer Service
Location
Communication Mix
Store Design
And Display
Merchandise Assortment
Pricing
TV and Magazine Ads

54. Claire’s Retail Mix Store Design and Display
Customer Service
Location
Bright, fashionable and fun
boutique layout
Merchandise Assortments
Communication Mix
Pricing

55. Claire’s Retail Mix Customer Service Modest Location
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix

56. Macy’s Retail Mix Customer Service Location Retail Strategy
Store Design
and Display
Merchandise
Assortment
Pricing
Communication Mix

57. Macy’s Retail Mix Location Strategy Enclosed Malls Customer Service
Merchandise
Assortment
Pricing
Communication Mix
Store Display
And Design

58. Macy’s Retail Mix Assortment Strategy Many Items in Apparel
Customer Service
Location
Many Items in Apparel
and Soft Home
Store Design
and Display
Communication Mix
Pricing

59. Macy’s Retail Mix Pricing Strategy Moderate with Frequent Sales
Location
Pricing Strategy
Customer Service
Merchandise Assortment
Store Design
and Display
Communication Mix
Moderate with
Frequent Sales

60. Macy’s Retail Mix Communication Mix TV, Newspaper Ads and
Customer Service
Location
Communication Mix
Store Design
And Display
Merchandise Assortment
Pricing
TV, Newspaper Ads and
Special Events

61. Macy’s Retail Mix Store Design and Display Racetrack with Displays
Customer Service
Location
Racetrack with Displays
Merchandise Assortments
Communication Mix
Pricing

62. Macy’s Retail Mix Customer Service Modest Location
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix

63. Target’s Retail Mix Customer Service Location Retail Strategy
Store Design
and Display
Merchandise
Assortment
Pricing
Communication Mix

64. Target’s Retail Mix Location Strategy Free-standing Stores
Customer Service
Merchandise
Assortment
Pricing
Communication Mix
Store Display
And Design

65. Target’s Retail Mix Assortment Strategy Large Number of Categories
Customer Service
Location
Large Number of Categories
Private Labels
Few Items in Each Category
Store Design
and Display
Communication Mix
Pricing

66. Target’s Retail Mix Pricing Strategy Low to Modest Location
Customer Service
Merchandise Assortment
Store Design
and Display
Communication Mix
Low to Modest

67. Target’s Retail Mix Communication Mix TV and Newspaper Insert Ads
Customer Service
Location
Communication Mix
Store Design
And Display
Merchandise Assortment
Pricing
TV and Newspaper
Insert Ads

68. Target’s Retail Mix Store Design and Display
Customer Service
Location
Colorful, wide aisles displays
for products with a grid layout
Merchandise Assortments
Communication Mix
Pricing

69. Target’s Retail Mix Customer Service Limited Location
Merchandise Assortment
Store Design and Display
Pricing
Communication Mix

70. Ethical Situations for a Retail Manager
Should a retailer sell merchandise that they suspect utilized child labor?
Should it advertise that its prices are the lowest in an area even though some items are not?
Should a buyer accept an expensive gift from a vendor?
Should salespeople use high-pressure sales when they know the product is not the best for the customer’s needs?
Should a retailer give preference to minorities when making a promotion decision?
Should a retailer treat some customers better than others?

71. Checklist for Making Ethical Decisions

72. You are Faced with an Ethical Decision: What Can You Do?
Ignore your personal values and do what your company asks you to do – you will probably feel dissatisfied with your job .
Take a stand and tell your employer what you think. Work to change the policies.
Refuse to compromise your principles – you could lose your job!

73. Careers in Retailing Career Opportunities Store Management
Merchandise Management
Corporate Staff

74. Misconceptions About Careers in Retailing
College not needed
Low pay
Long hours
Boring
Dead-end job
No benefits
Everyone is part-time
Unstable environment
No opportunity for women and minorities
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

75. Why You Should Consider Retailing
Entry level management positions:
Department manager or assistant buyer/planner
Manage and have P&L responsibility on your first job
Starting pay average with great benefits
Some retailers pay graduate school
No two days are alike
Buying and planning for financially analytically oriented
Management for people-people

76. Types of Jobs in Retailing
Most entry level jobs are in store management or buying, but there’s…
-accounting and finance
-real estate
-human resource management
-supply chain management
-advertising
-public affairs
-information systems
-loss prevention
-visual merchandising