Chapter 1 Introduction to the World of Retailing McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Dec 20, 2015
Chapter 1
Introduction to the World of Retailing
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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The World of Retailing
Introduction to Retailing
Types of Retailers
Multi-Channel Retailing
Customer Buying Behavior
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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?
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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.
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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
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Manufacturer’s Perspective
The Four P’s of Marketing
Distribution
Retailers are part of the
distribution channel
Retailers are part of the
distribution channelProduct
Price
Promotion
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Distribution Channel
Typical Supply Chain Network
Suppliers Plants
DistributionCenters
Customers
retailers
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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.
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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
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Do Retailers Add Value?
a box of crackers at a grocery store costs $1 to manufacturer sells at a price of $2
Retailers add significantly to the prices consumers face
Why not buy directly from the manufacturer?
Does that mean that grocery stores are very profitable?
Example
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Manufacturer
Vendor
Distributor
Wholesaler
Retailer
$1.00 $1.20 $2.00
$.85 $.15 $.70
Consumer
Price to Distributor
Price to Retailer
Price to Consumer
Why Not Get Rid of the Middlemen?
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Better services to customersMore efficient
Why Not Get Rid of the Middlemen?
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Music Industry Channel
Composer
LyricistPublisher
Record
CompanyMusic Retailer
Artist Distributor
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Cost for CD
Retailer $5.00Record Company Manufacturing .75 Distribution 1.50 Marketing 2.00 Coop advertising 1.00 Artist/Repertoire 1.00 Artist royalty 1.25 Lyricist .75 Overhead/Profit 2.00
Total 15.25
• 4 out of 5 CDs fail to make a profit
• $300,000 cost to prepare a CD for release
• 30,000 recording artists
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How Retailers Add Value
■ Provide AssortmentBuy other products
at the same time■ Break Bulk
Buy it in quantities customers want
■ Hold InventoryBuy it at a
convenient place when you want it
■ Offer ServicesSee it before you
buy; get credit; layaway
Ryan McVay/Getty Images
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How Retailers Add Value
The value of the product and service increases as the retailer performs functions.
Bicycle is developed at manufacturerBicycle is developed at manufacturer
Bicycle is developed in several styles
Bicycle is developed in several styles
Bicycle is offered in convenient locations in quantities of one
Bicycle is offered in convenient locations in quantities of one
Bicycle is featured on floor display
Bicycle is featured on floor display
Bicycle can be bought on credit or
put on layaway
Bicycle can be bought on credit or
put on layaway
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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
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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
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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
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World’s 20 Largest Retailers in 2005
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Structure of Retailing and Distribution Channels around the World: The United States
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.
CHINAThe United States
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Comparison of Distribution Channels around the World
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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)
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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
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Nature of Retail Industry is Changing
Mom and Pop Store
To Today’s Retailer
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Retailers are a Business Like Manufacturers
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
MIS
Real Estate
Operations
Finance
Promotion/Advertising
Human Resources
Loss Prevention
Store Design
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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
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Opportunities in Retailing:Entrepreneurial opportunities
■ 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)
Wal-Mart: Sam Walton
IKEA: Ingvar Kamprad
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Career Opportunities in RetailingStart Your Own Business
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)
List of Retail Entrepreneurs on Forbes 400 Richest Americans
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Retail Management Decision Process
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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
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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
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Retail Strategy
■ A retail strategy should identify the target market the product and service mix a long-term comparative advantage
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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
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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)
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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
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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
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Whole Foods Implementation
Strategy - organic and natural foods supermarket chainAssortment beyond organic/natural foods
Private labels - Whole Food™, 360 Day Value™Love, trust, and employee empowermentEquality in compensation
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Decision Variables for Retailers
Customer Service
Store Design and Display
MerchandiseAssortment
Communication Mix
LocationPricing
Retail
Strategy
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Wal-Mart’s Retail Mix
Retail Strategy
Customer Service
Location
MerchandiseAssortment
PricingCommunication Mix
Store DesignAnd Display
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Wal-Mart’s Retail Mix
Free-standing Stores
Customer Service
MerchandiseAssortment
PricingCommunication
Mix
Store DisplayAnd Design
Location Strategy
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Wal-Mart’s Retail Mix
Location
PricingCommunication
Mix
Store Design and Display
Customer Service
Large Number of Categories
Few Items in Each Category
Assortment Strategy
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Wal-Mart’s Retail Mix
Location
Communication Mix
Store Design and Display
Customer Service
Merchandise Assortment
Low, EDLP
Pricing Strategy
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Wal-Mart’s Retail Mix
Communication Mix
TV and NewspaperInsert Ads
Location
Pricing
Store Design and Display
Customer Service
Merchandise Assortment
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Wal-Mart’s Retail Mix
Store Design and Display
Basic, Special Displays
for Products
Customer Service Location
Merchandise Assortments
PricingCommunication
Mix
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Wal-Mart’s Retail Mix
Customer Service
Limited
Location
Merchandise Assortment
Pricing
Communication Mix
Store Design and Display
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Claire’s Retail Mix
Retail Strategy
Customer Service Location
Merchandise
Assortment
PricingCommunication Mix
Store Design
and Display
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Claire’s Retail Mix
Enclosed malls
Customer Service
Merchandise
Assortment
PricingCommunication Mix
Store Display
And Design
Location Strategy
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Claire’s Retail Mix
Location
Pricing
Communication Mix
Store Design
and Display
Customer Service
Jewelry, accessories and cosmetics for tweens and teens
Assortment Strategy
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Claire’s Retail Mix
Location
Communication Mix
Store Design
and Display
Customer Service
Merchandise Assortment
Modest with Sales
Pricing Strategy
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Claire’s Retail Mix
Communication Mix
TV and Magazine Ads
Store Design
And Display
Customer ServiceLocation
Merchandise Assortment
Pricing
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Claire’s Retail Mix
Store Design and Display
Bright, fashionable and fun
boutique layout
Customer Service Location
Merchandise Assortments
PricingCommunication Mix
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Claire’s Retail Mix
Customer Service
Modest
Location
Merchandise Assortment
Pricing
Communication Mix
Store Design and Display
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Macy’s Retail Mix
Retail Strategy
Customer Service Location
Merchandise
Assortment
PricingCommunication Mix
Store Design
and Display
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Macy’s Retail Mix
Enclosed Malls
Customer Service
Merchandise
Assortment
PricingCommunication Mix
Store Display
And Design
Location Strategy
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Macy’s Retail Mix
Location
Pricing
Communication Mix
Store Design
and Display
Customer Service
Many Items in Apparel
and Soft Home
Assortment Strategy
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Macy’s Retail Mix
Location
Communication Mix
Store Design
and Display
Customer Service
Merchandise Assortment
Moderate with
Frequent Sales
Pricing Strategy
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Macy’s Retail Mix
Communication Mix
TV, Newspaper Ads and
Special Events
Store Design
And Display Merchandise Assortment
Pricing
Customer ServiceLocation
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Macy’s Retail Mix
Store Design and Display
Racetrack with Displays
Customer Service Location
Merchandise Assortments
PricingCommunication Mix
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Macy’s Retail Mix
Customer Service
Modest
Location
Merchandise Assortment
Pricing
Communication Mix
Store Design and Display
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Target’s Retail Mix
Retail Strategy
Customer Service Location
Merchandise
Assortment
PricingCommunication Mix
Store Design
and Display
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Target’s Retail Mix
Free-standing Stores
Customer Service
Merchandise
Assortment
PricingCommunication Mix
Store Display
And Design
Location Strategy
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Target’s Retail Mix
Location
Pricing
Communication Mix
Store Design
and Display
Customer Service
Large Number of Categories
Private Labels
Few Items in Each Category
Assortment Strategy
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Target’s Retail Mix
Location
Communication Mix
Store Design
and Display
Customer Service
Merchandise Assortment
Low to Modest
Pricing Strategy
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Target’s Retail Mix
Communication Mix
TV and Newspaper
Insert Ads
Store Design
And Display
Customer ServiceLocation
Merchandise Assortment
Pricing
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Target’s Retail Mix
Store Design and Display
Colorful, wide aisles displays
for products with a grid layout
Customer Service Location
Merchandise Assortments
PricingCommunication Mix
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Target’s Retail Mix
Customer Service
Limited
Location
Merchandise Assortment
Pricing
Communication Mix
Store Design and Display
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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?
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Checklist for Making Ethical Decisions
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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!
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Careers in Retailing
Career Opportunities Store Management Merchandise Management Corporate Staff
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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
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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
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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