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Welcome to Retail Management: A Strategic Approach, 10e. We hope you find this book to be bothinformative and reader-friendly. Please visit our Web site (www.prenhall.com/bermanevans )for interactive, useful, up-to-date features that complement the textincluding chapter hotlinks, a study guide, and much more! The complete Web features are highlighted on the endpages of the print book.

In Part One, we explore the field of retailing, establishing and maintaining relationships, and

the basic principles of strategic planning and the decisions made in owning or managing aretail business.

Chapter 1 describes retailing, shows why it should be studied, and examines itsspecial characteristics. We note the value of strategic planning, including a detailedreview of Target Corporation (a titan of retailing).The retailing concept is presented,along with the total retail experience, customer service, and relationship retailing.The focus and format of the text are detailed.

Chapter 2 looks at the complexities of retailersrelationshipswith both cus-tomers and other channel members. We examine value and the value chain,customer relationships and channel relationships, the differences in relationship-

building between goods and service retailers, the impact of technology on retailingrelationships, and the interplay between ethical performance and relationships inretailing.The chapter ends with an appendix on planning for the unique aspects ofservice retailing.

Chapter 3 shows the usefulness of strategic planning for all kinds of retailers.We focus on the planning process: situation analysis, objectives, identifying con-sumers, overall strategy, specific activities, control, and feedback.We also look atthe controllable and uncontrollable parts of a retail strategy. Strategic planning isshown as a series of interrelated steps that are continuously reviewed. A detailedcomputerized strategic planning template, available at our Web site, is described.At the end of the chapter, there is an appendix on the strategic implications of

global retailing.

1

part oneAn Overview of Strategic Retail Management

part one

Because of permissions issues, some material (e.g., photographs) has been removed from this chapter, though reference to itmay occur in the text. The omitted content was intentionally deleted and is not needed to meet the University's requirements forthis course.

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Retail Management: A Strategic Approach, Tenth Edition, by Barry Berman and Joel R. Evans. Copyright 2007 by Pearson Education, Inc.

Published by Prentice Hall.

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3

A perfect example of a dreamcome true is the story of SamWalton, the founder of Wal-Mart(www.walmart.com). From asingle store, Wal-Mart hasgrown to become the largestcompany in the United States interms of revenues. And today

it dwarfs every other retailer. In2005, Wal-Mart was rated as oneof Americas top five mostadmired corporations by Fortunemagazine.

As a store owner in Bentonville,Arkansas, Sam Walton had a sim-ple strategy: to take his retailstores to rural areas of the United States and then sell goods at the lowest pricesaround. Sam was convinced that a large discount format would work in rural com-munities. Wal-Marts strategy is based on everyday low prices (which reduces itsadvertising costs), having the lowest prices on 1,500 key items, and on a low-cost dis-

tribution system (based on scanning and a satellite communications system).

Waltons first discount store opened in 1962 and used such slogans as We sell forless and Satisfaction guaranteed, two of the retailers current hallmarks. By theend of 1969, Wal-Mart had expanded to 31 locations. Within a year, Wal-Martbecame a public corporation and rapidly grew on the basis of additional discountstores and global expansion. Wal-Mart has become a true textbook example of howa retailer can maintain growth without losing sight of its original core values of lowoverhead, the use of innovative distribution systems, and customer orientationwhereby employees swear to serve the customer. So help me, Sam.1

chapter objectives1. To define retailing, consider it from various perspectives, demonstrateits impact, and note its special characteristics

2. To introduce the concept of strategic planning and apply it

3. To show why the retailing concept is the foundation of a successfulbusiness, with an emphasis on the total retail experience, customerservice, and relationship retailing

4. To indicate the focus and format of the text

Chapter 1AN INTRODUCTION TO RETAILING

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4 PARTONE ANOVERVIEW OFSTRATEGICRETAILMANAGEMENT

OVERVIEW

Retailing encompasses the business activities involved in selling goods and ser-vices to consumers for their personal, family, or household use. It includes everysale to thefinal consumerranging from cars to apparel to meals at restaurants tomovie tickets. Retailing is the last stage in the distribution process.

Retailing today is at a fascinating crossroads. On the one hand, retail sales are

at their highest point in history. Wal-Mart is now the leading company in the worldin terms of salesahead of ExxonMobil, General Motors, and other manufacturinggiants. New technologies are improving retail productivity. There are lots of oppor-tunities to start a new retail businessor work for an existing oneand to becomea franchisee. Global retailing possibilities abound. On the other hand, retailers facenumerous challenges. Many consumers are bored with shopping or do not havemuch time for it. Some locales have too many stores, and retailers often spur oneanother into frequent price cutting (and low profit margins). Customer serviceexpectations are high at a time when more retailers offer self-service and auto-mated systems. At the same time, some retailers remain unsure what to do with theWeb; they are still grappling with the emphasis to place on image enhancement,customer information and feedback, and sales transactions.

These are the key issues that retailers must resolve: How can we best serve ourcustomers while earning a fair profit? How can we stand out in a highly competi-tive environment where consumers have so many choices? How can we grow ourbusiness while retaining a core of loyal customers? Our point of view: Retail deci-sion makers can best address these questions by fully understanding and applyingthe basic principles of retailing in a well-structured, systematic, and focused retailstrategy. That is the philosophy behind Retail Management: A Strategic Approach.

Can retailers flourish in todays tough marketplace? You bet! Just look at yourfavorite restaurant, gift shop, and food store. Look at the growth of Costco,Starbucks, and Lowes. What do they have in common? A desire to please the cus-tomer and a strong market niche. To prosper in the long term, they all need a strate-gic plan and a willingness to adapt, both central thrusts of this book. See Figure 1-1.

Visit Lowes Web site(www.lowes.com) and seewhat drives one of theworlds hot retailers.

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CHAPTER1 ANINTRODUCTION TORETAILING 5

Service businesses suchas Lawn Doctor(www.lawndoctor.com)often engage in retailing.

In Chapter 1, we look at the framework of retailing, the importance of devel-oping and applying a sound retail strategy, and the focus and format of the text.

THE FRAMEWORK OF RETAILINGTo better appreciate retailings role and the range of retailing activities, let us viewit from three different perspectives:

Suppose we manage a manufacturing firm that makes vacuum cleaners.How should we sell these items? We could distribute via big chains suchas Best Buy or small neighborhood appliance stores, have our own salesforce visit people in their homes (as Aerusformerly Electroluxdoes), orset up our own stores (if we have the ability and resources to do so). We couldsponsor TV infomercials or magazine ads, complete with a toll-free phonenumber.

Suppose we have an idea for a new way to teach first graders how to use

computer software for spelling and vocabulary. How should we implementthis idea? We could lease a store in a strip shopping center and run ads in alocal paper, rent space in a Y and rely on teacher referrals, or do mailings toparents and visit children in their homes. In each case, the service is offeredlive. But there is another option: We could use an animated Web site toteach children online.

Suppose that we, as consumers, want to buy apparel. What choices do wehave? We could go to a department store or an apparel store. We could shopwith a full-service retailer or a discounter. We could go to a shopping center ororder from a catalog. We could look to retailers that carry a wide range ofclothing (from outerwear to jeans to suits) or look to firms that specialize inone clothing category (such as leather coats). We could surf around the Web

and visit retailers around the globe.

There is a tendency to think of retailing as primarily involving the sale oftangible (physical) goods. However, retailing also includes the sale of services.And this is a big part of retailing! A service may be the shoppers primary pur-chase (such as a haircut) or it may be part of the shoppers purchase of a good(such as furniture delivery). Retailing does not have to involve a store. Mail andphone orders, direct selling to consumers in their homes and offices, Web transac-tions, and vending machine sales all fall within the scope of retailing. Retailingdoes not even have to include a retailer. Manufacturers, importers, nonprofitfirms, and wholesalers act as retailers when they sell to final consumers.

Let us now examine various reasons for studying retailing and its specialcharacteristics.

Reasons for Studying RetailingRetailing is an important field to study because of its impact on the economy,its functions in distribution, and its relationship with firms selling goods andservices to retailers for their resale or use. These factors are discussed next. Afourth factor for students of retailing is the broad range of career opportunities,as highlighted with a Careers in Retailing box in each chapter, Appendix Aat the end of this book, and our Web site (www.prenhall.com/bermanevans).See Figure 1-2.

Learn more about theexciting array of retailingcareer opportunities(www.allretailjobs.com).

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The Impact of Retailing on the EconomyRetailing is a major part of U.S. and world commerce. Retail sales and employ-ment are vital economic contributors, and retail trends often mirror trends in anations overall economy.

According to the Department of Commerce, annual U.S. retail store sales exceed$4 trillionrepresenting one-third of the total economy. Telephone and mail-ordersales by nonstore retailers, vending machines, direct selling, and the Web generatehundreds of billions of dollars in additional yearly revenues. And personal con-sumption expenditures on financial, medical, legal, educational, and other servicesaccount for another several hundred billion dollars in annual retail revenues.Outside the United States, retail sales are several trillions of dollars per year.

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TABLE 1-1 The 10 Largest Retailers in the United States

2004 2005 20052004 After-Tax Number NumberSales Earnings of of

Rank Company Web Address Major Retail Emphasis (millions) (millions) Stores Employees

1 Wal-Mart www.walmart.com Full-line discount $289,189 $10,267 5,200+ 1,500,000+stores, supercenters,membership clubs

2 Home Depot www.homedepot.com Home centers, design centers 73,094 5,001 1,800+ 300,000+

3 Kroger www.kroger.com Supermarkets, convenience 56,434 (128) 3,800+ 290,000+stores, jewelry stores

4 Target www.target.com Full-line discount stores, 49,934 3,198 1,350+ 295,000+supercenters

5 Costco www.costco.com Membership clubs 48,107 882 450+ 110,000+

6 Albertsons www.albertsons.com Supermarkets, drugstores 40,052 444 2,300+ 230,000+

7 Walgreens www.walgreens.com Drugstores 37,508 1,350 4,750+ 160,000+

8 Lowes www.lowes.com Home centers 36,464 2,176 1,100+ 160,000+

9 Sears Roebuck www.sears.com Department stores, 36,099 (507) 2,400+ 240,000+specialty stores

10 Safeway www.safeway.com Supermarkets 35,823 560 1,800+ 190,000+

Sources: Largest U.S. Corporations, Fortune (April 18, 2005); and company annual reports.

Durable goods storesincluding motor vehicles and parts dealers; furniture,home furnishings, electronics, and appliances stores; and building materialsand hardware storesmake up 38 percent of U.S. retail store sales. Nondurablegoods and services storesincluding general merchandise stores; food and bever-age stores; health and personal care stores; gasoline stations; clothing and acces-sories stores; sporting goods, hobby, book, and music stores; eating and drinkingplaces; and miscellaneous retailerstogether account for 62 percent of U.S. retail

store sales.The worlds 100 largest retailers generate more than $2.4 trillion in annual rev-

enues. They represent 17 nations. Forty-three of the 100 are based in the UnitedStates, 12 in Great Britain, 9 in France, 9 in Germany, and 9 in Japan.2 Table 1-1 showsthe 10 largest U.S. retailers. In 2004, they produced more than $700 billion in sales,operated about 25,000 stores, and had 3.5 million employees. Visit our Web site forlinks to a lot of current information on retailing (www.prenhall.com/bermanevans ).

Retailing is a major source of jobs. In the United States alone, 25 millionpeopleabout one-sixth of the total labor forcework for traditional retailers(including food and beverage places). Yet this figure understates the true numberof people who work in retailing because it does not include the several millionpersons employed by service firms, seasonal employees, proprietors, and unre-

ported workers in family businesses or partnerships.From a cost perspective, retailing is a significant field of study. In the United

States, on average, 30 cents of every dollar spent in department stores, 44 centsspent in furniture and home furnishings stores, and 28 cents spent in grocerystores go to the retailers to cover operating costs, activities performed, and profits.Costs include rent, displays, wages, ads, and maintenance. Only a small part ofeach dollar is profit. In 2004, the 10 largest U.S. retailers after-tax profits averaged

The OccupationalOutlook Handbook(www.bls.gov/oco) is agreat source of informationon employment trends.

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Manufacturer Wholesaler Retailer Final

consumer

FIGURE 1-4A Typical Channel ofDistribution

3.3 percent of sales.3 Figure 1-3 shows costs and profits for Walgreens, a drug-store chain.

Retail Functions in DistributionRetailing is the last stage in a channel of distributionall of the businesses andpeople involved in the physical movement and transfer of ownership of goodsand services from producer to consumer. A typical distribution channel is shownin Figure 1-4. Retailers often act as the contact between manufacturers, whole-salers, and the consumer. Many manufacturers would like to make one basic typeof item and sell their entire inventory to as few buyers as possible, but consumers

usually want to choose from a variety of goods and services and purchase a lim-ited quantity. Retailers collect an assortment from various sources, buy in largequantity, and sell in small amounts. This is the sorting process. See Figure 1-5.

Another job for retailers is communicating both with customers and withmanufacturers and wholesalers. Shoppers learn about the availability and charac-teristics of goods and services, store hours, sales, and so on from retailer ads, sales-people, and displays. Manufacturers and wholesalers are informed by their retail-ers with regard to sales forecasts, delivery delays, customer complaints, defectiveitems, inventory turnover, and more. Many goods and services have been modi-fied due to retailer feedback.

For small suppliers, retailers can provide assistance by transporting, storing,marking, advertising, and pre-paying for products. Small retailers may need the

same type of help from their suppliers. The tasks performed by retailers affect thepercentage of each sales dollar they need to cover costs and profits.

Retailers also complete transactions with customers. This means havingconvenient locations, filling orders promptly and accurately, and processing

$72.75 $21.50 $2.15 $3.60

Manufacturer's costs and profits

Retailer'soperating,personnel,advertising, andother costs

Retailer'sincometaxes

Retailer'safter-taxprofits

FIGURE 1-3The High Costs and LowProfits of RetailingWherethe Typical $100 Spent withWalgreens Went in 2004

Source: Computed by the authorsfrom Walgreens 2004 Annual

Report.



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Wholesaler

Wholesaler Retailer

Wholesaler

ManufacturerBrand A

Brand Ccustomers

Brand Dcustomers

Brand Ecustomers

Brand Fcustomers

Brand Bcustomers

Brand Acustomers

ManufacturerBrand B

ManufacturerBrand C

ManufacturerBrand D

ManufacturerBrand E

ManufacturerBrand F

FIGURE 1-5The Retailers Role in theSorting Process

credit purchases. Some retailers also provide customer services such as giftwrapping, delivery, and installation. To make themselves even more appealing,many firms now engage in multi-channel retailing, whereby a retailer sells toconsumers through multiple retail formats (points of contact). Most large retail-ers operate both physical stores and Web sites to make shopping easier and toaccommodate consumer desires. Some firms even sell to customers throughretail stores, mail-order catalogs, a Web site, and a toll-free phone number. SeeFigure 1-6.

For these reasons, products are usually sold through retailers not owned bymanufacturers (wholesalers). This lets the manufacturers reach more customers,

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Number of retailers

Lowest

Medium

Highest

ExclusiveDistribution

IntensiveDistribution

SelectiveDistribution

Potential for conflict

Support from supplier (retailer)

Supplier's sales

Retailer's brand selection

Product (retailer) image

Competition among retailers

FIGURE 1-7Comparing Exclusive,Intensive, and SelectiveDistribution

Sherwin-Williams(www.sherwin-williams.com) is not only a designerbut also a retailer.

reduce costs, improve cash flow, increase sales more rapidly, and focus on theirarea of expertise. Select manufacturers such as Sherwin-Williams and Polo RalphLauren do operate retail facilities (besides selling at traditional retailers). In run-ning their stores, these firms complete the full range of retailing functions andcompete with conventional retailers.

The Relationships Among Retailersand Their SuppliersRelationships among retailers and suppliers can be complex. Because retailers arepart of a distribution channel, manufacturers and wholesalers must be concernedabout the caliber of displays, customer service, store hours, and retailers reliabil-ity as business partners. Retailers are also major customers of goods and servicesfor resale, store fixtures, computers, management consulting, and insurance.

These are some issues over which retailers and suppliers have different priori-ties: control over the distribution channel, profit allocation, the number of compet-ing retailers handling suppliers products, product displays, promotion support,payment terms, and operating flexibility. Due to the growth of chains, retailershave more power than ever. Unless suppliers know retailers needs, they cannothave good rapport with them; and as long as retailers have a choice of suppliers,they will pick those that offer more.

Channel relations tend to be smoothest with exclusive distribution, wherebysuppliers make agreements with one or a few retailers that designate the latter asthe only ones in specified geographic areas to carry certain brands or products.This stimulates both parties to work together to maintain an image, assign shelfspace, allot profits and costs, and advertise. It also usually requires that retailerslimit their brand selection in the specified product lines; they might have todecline to handle other suppliers brands. From the manufacturers perspective,exclusive distribution may limit their long-run total sales.

Channel relations tend to be most volatile with intensive distribution,whereby suppliers sell through as many retailers as possible. This often maxi-mizes suppliers sales and lets retailers offer many brands and product versions.



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Small average sale Impulse purchases

Popularity of stores

Retailer'sstrategy

FIGURE 1-8Special CharacteristicsAffecting Retailers

to build awareness for its brand when it first entered theChinese market. Later, Vuitton sponsored a five-day

classic car China Run from Dalian to Beijing, whichattracted over 6 million people.

Giorgio Armani (www.giorgioarmani.com ) alreadyhas several stores in China and plans a total of 30 as of2008. Prada (www.prada.com) planned to have 13 stores

in China by the end of 2005.

Source: Sarah Raper Larenaudie, Luxury for the People! Time Style &

Design (Spring 2005).

Upscale Retailer Slowly Enters ChinaAround the WorldR E T A I L I N G

Even though there is no Louis Vuitton (www.vuitton.com) store in either Philadelphia or Nashville, the luxury

leather goods retailer just opened its 338th boutique inQingdao, a Chinese sea resort. According to some market

analysts, the China market may become the new Japan.While Japanese consumers account for approximately41 percent of global luxury sales, the Chinese (including

residents of Hong Kong) already account for 12 percent.A Goldman Sachs analyst predicts that the Chinese will

account for one-fifth of total luxury sales by 2008 andbecome as important as the Japanese market by 2015.

Since there are no glossy magazines in China, Vuittonused a touring exhibition on the history of luxury goods

Competition among retailers selling the same items is high; and retailers may use

tactics not beneficial to individual suppliers, as they are more concerned abouttheir own results. Retailers may assign little shelf space to specific brands, set veryhigh prices on them, and not advertise them.

With selective distribution, suppliers sell through a moderate number ofretailers. This combines aspects of exclusive and intensive distribution. Suppliershave higher sales than in exclusive distribution, and retailers carry some compet-ing brands. It encourages suppliers to provide some marketing support and retail-ers to give adequate shelf space. See Figure 1-7.

The Special Characteristics of RetailingThree factors that distinguish retailing from other types of business are noted inFigure 1-8 and discussed here. Each factor imposes unique requirements on retailfirms.

The average amount of a sales transaction for retailers is much less than for manufactur-ers. The average sales transaction per shopping trip is well under $100 for depart-ment stores, specialty stores, and supermarkets. This low amount creates a need totightly control the costs associated with each transaction (such as credit verifica-tion, sales personnel, and bagging); to maximize the number of customers drawn

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to the retailer, which may place more emphasis on ads and special promotions;and to increase impulse sales by more aggressive selling. However, cost controlcan be tough. For instance, inventory management is often expensive due to themany small transactions to a large number of customers. A typical supermarkethas several thousand customer transactions per week, which makes it harder tofind the proper in-stock level and product selection. Thus, retailers are expandingtheir use of computerized inventory systems.

Final consumers make many unplanned or impulse purchases. Surveys show that alarge percentage of consumers do not look at ads before shopping, do not prepareshopping lists (or deviate from the lists once in stores), and make fully unplannedpurchases. This behavior indicates the value of in-store displays, attractive storelayouts, and well-organized stores, catalogs, and Web sites. Candy, cosmetics,snack foods, magazines, and other items are sold as impulse goods when placedin visible, high-traffic areas in a store, catalog, or Web site. Because so many pur-chases are unplanned, the retailers ability to forecast, budget, order merchandise,and have sufficient personnel on the selling floor is more difficult.

Retail customers usually visit a store, even though mail, phone, and web sales haveincreased. Despite the inroads made by nonstore retailers, most retail transactionsare still conducted in storesand will continue to be in the future. Many peoplelike to shop in person; want to touch, smell, and/or try on products; like tobrowse for unplanned purchases; feel more comfortable taking a purchase homewith them than waiting for a delivery; and desire privacy while at home.This store-based shopping orientation has implications for retailers; they mustwork to attract shoppers to stores and consider such factors as store location,transportation, store hours, proximity of competitors, product selection, parking,and ads.

THE IMPORTANCE OF DEVELOPING AND APPLYINGA RETAIL STRATEGY

Aretail strategy is the overall plan guiding a retail firm. It influences the firmsbusiness activities and its response to market forces, such as competition and theeconomy. Any retailer, regardless of size or type, should utilize these six steps instrategic planning:

1. Define the type of business in terms of the goods or service category and thecompanys specific orientation (such as full service or no frills).

2. Set long-run and short-run objectives for sales and profit, market share, image,and so on.

3. Determine the customer market to target on the basis of its characteristics(such as gender and income level) and needs (such as product and brandpreferences).

4. Devise an overall, long-run plan that gives general direction to the firm and itsemployees.

5. Implement an integrated strategy that combines such factors as store location,product assortment, pricing, and advertising and displays to achieve objectives.

6. Regularly evaluate performance and correct weaknesses or problems whenobserved.

Bloomingdales(www.bloomingdales.com)has a Web site toaccompany its traditionalstores and catalogs.



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To illustrate these points, the background and strategy of Target Storesoneof the worlds foremost retailersare presented. Then the retailing concept isexplained and applied.

Target Stores: The Successful Sagaof an Upscale Discounter!4

Company BackgroundTarget Stores is the leading division of Target Corporation. A brief history ofTarget Stores appears at its Web site (www.target.com):

Unlike most other mass merchandisers, we have department store roots.Back in 1961, Daytons department store identified a demand for a storethat sold less expensive goods in a quick, convenient format. Target wasborn. In 1962, the first Target store opened in Roseville, Minnesota. Wewere the first retail store to offer well-known national brands at dis-counted prices. We paved new ground by implementing electronic cashregisters storewide to monitor inventory and speed up guest service. We

also began hosting an annual shopping event for seniors and peoplewith disabilities, plus a toy safety campaign. Opening new stores all thetime, we rolled out electronic scanning nationwide. In the 1990s, welaunched our first Target Greatland store. Our Club Wedd bridal gift reg-istry went nationwide in 1995, and Lullaby Club soon followed. We nextopened our first SuperTarget store, which combined groceries and spe-cial services with a Target Greatland store. We introduced our creditcard, the Target Guest Card.

After divesting itself of the underperforming Mervyns and Marshall Fieldschains, today Target Corporation is an upscale discounter that provides qualitymerchandise at attractive prices in clean, spacious, and guest-friendly stores

through its various Target Stores and its Target.com Web site. Target Corporationhas nearly 1,400 stores in 47 states with almost 300,000 employees. Besides oper-ating a popular Web shopping site of its own, the firm is a partner ofAmazon.com. Target Corporation is the fourth largest U.S. retailer (in terms ofrevenues).

The Target Stores Strategy: Keys to SuccessThroughout its existence, Target Stores has adhered to a consistent, far-sighted,customer-oriented strategyone that has paved the way for its long-termachievements:

Growth-oriented objectives. Target Corporation has long been guided by princi-ples that are designed to enhance our long-term financial performance andwe remain steadfastly committed to strategies that fuel consistent growthand profitable market share gains. We believe that by managing our businesslike this, we can continue to deliver average annual growth in earnings pershare of 15 percent or more over time and generate substantial value for ourshareholders.

Appeal to a prime market. The firm is strong with middle-income, well-educatedadults, who have an average income that is about 20 percent higher than thetypical Wal-Mart shopper. It is quite popular among female shoppers, parentswith children under 18, and 25- to 54-year-olds.

See the mass/classapproach of Target Stores(www.target.com).

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Distinctive company image. Target Stores has done a superb job of positioningitself: Pay Less + Expect More. See Figure 1-9. It is a true discount departmentstore chain with everyday low prices. Along with Wal-Mart and Kmart, TargetStores makes up the big three of discounting. It has linoleum floors, shoppingcarts, and a simple store layout. But Target is also perceived as an upscale dis-counter. It carries products from such designers as Mossimo (apparel), IsaacMizrahi (apparel and home products), Michael Graves (home products), LizLange (maternity clothes), and Amy Coe (babys nursery).

Focus. The chain never loses sight of its discount store niche: Our strategicdirection at Target is clear: to continue to delight our guests with differenti-ated merchandising and exceptional value while we continue to invest in ourtechnology and leverage our resources throughout our organization toenhance our performance.

Strong customer service for its retail category. The firm prides itself on offeringexcellent customer service for a discount store. For example, at the end ofmany aisles, there is a red service phone so shoppers can check a price or aska question.

Multiple points of contact. Target reaches its customers through extensiveadvertising, stores in 47 states, a toll-free telephone service center (open7 days a week, 17 hours per day), and a Web site.

Employee relations. These are some of the awards recently won by Target: Top

30 Companies for Executive Women by the National Association for FemaleExecutives, Best for Latinas in Latina Style magazines 50 Best Companiesfor Latinas, Top Work Place for Women in Working Mother magazines100 Best Companies for Working Women, 100 Best Corporate Citizens byBusiness Ethics magazine (for diversity efforts), and Top in Training inTraining magazines Training Top 100 list.

Innovation. The firm has long embraced the concepts of innovation and new-ness, recognizing the importance of creating unique ways to delight ourguests every time they visit our stores.

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Customer orientation

Coordinated effort

Goal orientation

Retailing

concept

Retail

strategy

Value-driven

FIGURE 1-10Applying the RetailingConcept

Commitment to technology. Target is devoted to new technologies. Considerthe Target Visa card: It has a built-in computer chip, called a smart chip.Today, you can use your Target Visa with an in-home smart card reader toaccess exclusive offers. And soon, youll see exciting new smart chip featurespopping up! The chip makes the Target Visa smart.

Community involvement. Target believes in giving back. One of its popularprograms is School Fundraising: You can support your school just by shop-

ping with your Target Visa or Target Guest Card. Target will donate anamount equal to one percent of your qualifying purchases at Target Stores ortarget.com to the eligible K12 school of your choice.

Constantly monitoring performance. Two years ago, Target sold off two divi-sions: Both Marshall Fields and Mervyns were saddled with declining salesand most experts believed Target would be better off getting rid of both andflying solo. Today, Target is on its own with a lighter load and more freecash after selling the two chains for a total of $4.9 billion.

The Retailing Concept

As we just described, Target Stores has a sincere long-term desire to please cus-tomers. In doing so, it uses a customer-centered, chainwide approach to strategydevelopment and implementation; it is value-driven; and it has clear goals. Together,these four principles form the retailing concept (depicted in Figure 1-10), whichshould be understood and applied by all retailers:

1. Customer orientation. The retailer determines the attributes and needs of its cus-tomers and endeavors to satisfy these needs to the fullest.

2. Coordinated effort. The retailer integrates all plans and activities to maximizeefficiency.

3. Value-driven. The retailer offers good value to customers, whether it be upscaleor discount. This means having prices appropriate for the level of products and

customer service.4. Goal orientation. The retailer sets goals and then uses its strategy to attain them.

Unfortunately, this concept is not grasped by every retailer. Some are indiffer-ent to customer needs, plan haphazardly, have prices that do not reflect the valueoffered, and have unclear goals. Some are not receptive to change, or they blindly

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Implementing the healthy options menu items hasnot been easy. Although a large percentage of con-

sumers say they want healthy foods, less than 10 per-cent of McDonalds customers actually buy the salads.

The healthy items are also more costly for McDonalds

to purchase, as well as to store. The apple dippers andsalads, for example, must be delivered several times perweek to be fresh since McDonalds does not use any

preservatives or additives in these items.

Sources: Melanie Warner, You Want Any Fruit with That Big Mac?

New York Times (February 20, 2005); and Fruit & Walnut Salad, www.

mcdonalds.com/usa/eat/features/fruitnwalnut.html (November 19,

2005).

Ethics inR E T A I L I N G

McDonalds Introduces a More Well-Rounded Menu

McDonalds (www.mcdonalds.com) now offers slicedapples, called Apple Dippers, as an alternative to

french fries in its Happy Meals. McDonalds has alsorecently added a line of premium salads and a spe-

cialty salad consisting of grapes, walnuts, and apples

to its menu. While McDonalds has offered salads onits menu since the late 1980s, these new salads areamong its most successful new products in the past

10 years.The company hopes that the healthy new menu addi-

tions will reduce criticism that McDonalds offers fat- and

salt-laden foods to an unsuspecting public, includingsmall children. What remains to be seen is the extent to

which these healthier alternatives result in positivechanges in consumer tastes.

follow strategies enacted by competitors. Some do not get feedback from cus-tomers; they rely on supplier reports or their own past sales trends.

The retailing concept is straightforward. It means communicating with shop-pers and viewing their desires as critical to the firms success, having a consistentstrategy (such as offering designer brands, plentiful sales personnel, attractive dis-plays, and above-average prices in an upscale store), offering prices perceived asfair (a good value for the money) by customers, and working to achieve mean-

ingful, specific, and reachable goals. However, the retailing concept is only astrategic guide. It does not deal with a firms internal capabilities or competitiveadvantages but offers a broad planning framework.

Lets look at three issues that relate to a retailers performance in terms of theretailing concept: the total retail experience, customer service, and relationshipretailing.

The Total Retail ExperienceWhile one consumer may shop at a discount retailer, another at a neighborhoodstore, and a third at a full-service firm, these diverse customers all have somethingcrucial in common: They each encounter a total retail experience (including every-

thing from parking to checkout counter) in making a purchase. According to thedirector of IBMs global retail consulting practice, Consumers are clearly tellingretailers that they want a personalized and interactive shopping experience. Theywant immediate access to promotions based on past purchases and loyalty, as wellas precise details on product availability or items that are out-of-stock. They alsowant helpful sales associates, fast service, and a store that is easy to shop, some-times even more than they want low prices.5

The total retail experience includes all the elements in a retail offering thatencourage or inhibit consumers during their contact with a retailer. Many ele-ments, such as the number of salespeople, displays, prices, the brands carried, andinventory on hand, are controllable by a retailer; others, such as the adequacy ofon-street parking, the speed of a consumers modem, and sales taxes, are not. Ifsome part of the total retail experience is unsatisfactory, consumers may not makea purchasethey may even decide not to patronize a retailer again: Recently, Iwas in a store and couldnt find my charge card fast enough to apparently make



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my clerk happy. As I searched through my wallet, I apologized for the delayapologized several times. All the while she was visibly annoyed with my lack oforganization and remained unresponsive to my conversation. My experience withthat store was impacted by this salesperson. Her bad attitude could easily trans-late into a substantial loss of revenue for the store. She wasnt the owner, and herbehavior may not have reflected the attitude of the management, but the factremains, she does represent the management.6

In planning its strategy, a retailer must be sure that all strategic elements are inplace. For the shopper segment to which it appeals, the total retail experience must beaimed at fulfilling that segments expectations. A discounter should have amplestock on hand when it runs sales but not plush carpeting; and a full-service storeshould have superior personnel but not have them perceived as haughty by cus-tomers. Various retailers have not learned this lesson, which is why some themerestaurants are in trouble. The novelty has worn off, and many people believe thefood is only fair while prices are high.

A big challenge for retailers is generating customer excitement becausemany people are bored with shopping or have little time for it. Here is what oneretailer, highlighted in Figure 1-11, is doing:

Build-A-Bear Workshop is a unique and exceptional approach to theentertainment retail industry. The teddy bear theme is carried through-out the store with original teddy bear fixtures, murals, and artwork. Thestore associates, known as master Bear Builder associates, share theexperience with Guests at each phase of the bear-making process.Regardless of age, Guests enjoy the highly visual environment, thesounds, and the fantasy of this special place while they create a mem-ory with their friends and family. Guests who visit a Build-A-BearWorkshop store enter a lighthearted teddy-bear-themed environmentconsisting of eight bear-making stations: Choose Me, Hear Me (sounds),Stuff Me and Heart Stuff, Stitch Me, Fluff Me, Name Me, Dress Me, andTake Me Home.7

Build-A-Bear Workshop(www.buildabear.com)even offers a great onlineshopping experience.

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Customer ServiceCustomer service refers to the identifiable, but sometimes intangible, activitiesundertaken by a retailer in conjunction with the basic goods and services it sells. Ithas a strong impact on the total retail experience. Among the factors comprising acustomer service strategy are store hours, parking, shopper friendliness of thestore layout, credit acceptance, salespeople, amenities such as gift wrapping, rest

rooms, employee politeness, delivery policies, the time shoppers spend on check-out lines, and customer follow-up. This list is not all inclusive, and it differs interms of the retail strategy undertaken. Customer service is discussed further inChapter 2, Building and Sustaining Relationships in Retailing.

Satisfaction with customer service is affected by expectations (based on thetype of retailer) and past experience, and peoples assessment of customer servicedepends on their perceptionsnot necessarily reality. Different people may eval-uate the same service quite differently. The same person may even rate a firmscustomer service differently over time due to its intangibility, though the servicestays constant:

Costco shoppers dont expect anyone to help them to their car with bun-dles of commodities. Teens at Abercrombie & Fitch would be pretty

turned off if a tuxedo-clad piano player serenaded them while theyshopped. And Wal-Mart customers would protest loudly if the com-pany traded its shopping carts for oversized nylon tote bags. On theother hand, helping shoppers to their cars when they have an oversizedpurchase is part of the service package at P.C. Richard & Sons, pianomusic sets the mood at Nordstrom, and nylon totes jammed full ofvalue-priced apparel are in sync with the Old Navy image. Servicevaries widely from one retailer to the next, and from one shoppingchannel to the next. The challenge for retailers is to ask shoppers whatthey expect in the way of service, listen to what they say, and then makeevery attempt to satisfy them.8

Interestingly, despite a desire to provide excellent customer service, a numberof outstanding retailers now wonder if the customer is always right. Are therelimits? Ponder this scenario: Companies such as Home Depot, Saks Fifth Avenue,and Old Navy are among those that have tightened their return policies.Furthermore, Burlington Coat Factory gives only store credit, not cash, whenaccepting any kind of return. Dont have a receipt? Then you cant get cash orstore credit at Kmart stores. Changed your mind about your new laptop? Yourestuck with it after 14 days at Circuit City. Returning 20 pieces of clothing youbought at Express in a week? You may be stuck with all of it when your return isdeclined. Why the policy change? About 6 percent of retail purchases arereturned annually.9

Relationship RetailingThe best retailers know it is in their interest to engage in relationship retailing,whereby they seek to establish and maintain long-term bonds with customers,rather than act as if each sales transaction is a completely new encounter. Thismeans concentrating on the total retail experience, monitoring satisfaction withcustomer service, and staying in touch with customers. Figure 1-12 shows a cus-tomer respect checklist that retailers could use to assess their relationship efforts.

To be effective in relationship retailing, a firm should keep two points inmind: (1) Because it is harder to lure new customers than to make existing oneshappy, a win-win approach is critical. For a retailer to win in the long run

As with the retailersprofiled in this book,we want to engage inrelationship retailing. Soplease visit our Web site(www.prenhall.com/bermanevans).

At L.L. Bean(www.llbean.com),customer service meanssatisfaction is guaranteed.100%.



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(attract shoppers, make sales, earn profits), the customer must also win in thelong run (receive good value, be treated with respect, feel welcome by the firm).Otherwise, that retailer loses (shoppers patronize competitors) and customerslose (by spending time and money to learn about other retailers). (2) Due to theadvances in computer technology, it is now much easier to develop a customer

database with information on peoples attributes and past shopping behavior.Ongoing customer contact can be better, more frequent, and more focused. Thistopic is covered further in Chapter 2, Building and Sustaining Relationships inRetailing.

THE FOCUS AND FORMAT OF THE TEXTThere are various approaches to the study of retailing: an institutional approach,which describes the types of retailers and their development; a functional approach,which concentrates on the activities that retailers perform (such as buying, pricing,and personnel practices); and a strategic approach, which centers on defining the

retail business, setting objectives, appealing to an appropriate customer market,developing an overall plan, implementing an integrated strategy, and regularlyreviewing operations.

We will study retailing from each perspective but center on a strategicapproach. Our basic premise is that the retailer has to plan for and adapt to a com-plex, changing environment. Both opportunities and threats must be considered.By engaging in strategic retail management, the retailer is encouraged to studycompetitors, suppliers, economic factors, consumer changes, marketplace trends,legal restrictions, and other elements. A firm prospers if its competitive strengthsmatch the opportunities in the environment, weaknesses are eliminated or mini-mized, and plans look to the future (as well as the past).

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is 30,000 page views per hour, customer visits canincrease to 350,000 page views within 10 minutes of a

banner ad appearing on a major Web portal or search

engine.

As Admire says, because our site operates 24/7, wewant immediate notification if the site isnt performingproperly. Thats what the monitoring solution tells us. We

dont want to have to wait for the customers to tell us thesite isnt working.

Source: Dan Scheraga, Better Safe Than Sorry, Chain Store Age (March

2005), p. 77.

Technology inR E T A I L I N G

Lillian Vernon: Keeping Things Running 24/7

For Lillian Vernon, any downtime on its Web site(www.lillianvernon.com) can be quite detrimental asthe site accounts for 40 percent of the firms total retail

sales. According to Ellis Admire, Lillian Vernons direc-

tor of emerging technology, We cant afford for our Webstore to go down for even a few minutes.

Until recently, Lillian Vernon monitored its Web site

with load-testing software that simulated the effect of alarge number of Lillian Vernon customers accessing the

site at one time. Now, Lillian Vernon is able to con-stantly assess its Web sites performance. This is espe-cially helpful since the amount of Web site traffic is

highly variable. Although the firms average Web traffic

Retail Management: AStrategic Approach is divided into eight parts. The balanceof Part One looks at building relationships and strategic planning in retailing. PartTwo characterizes retailing institutions on the basis of their ownership, store-based strategy mix, and Web, nonstore-based, and other nontraditional retailingformat. Part Three deals with consumer behavior and information gathering inretailing. Parts Four to Seven discuss the specific elements of a retailing strategy:planning the store location; managing a retail business; planning, handling, andpricing merchandise; and communicating with the customer. Part Eight showshow a retailing strategy may be integrated, analyzed, and improved. These topicshave special end-of-chapter appendixes: service retailing (Chapter 2), globalretailing (Chapter 3), franchising (Chapter 4), and multi-channel retailing(Chapter 6). There are three end-of-text appendixes: retailing careers, about the

Web site accompanying Retail Management, and a glossary. And our Web siteincludes How to Solve a Case Study (www.prenhall.com/bermanevans ), whichwill aid you in your case analyses.

To underscore retailings exciting nature, four real-world boxes appear in eachchapter: Careers in Retailing, Ethics in Retailing, Retailing Around theWorld, and Technology in Retailing.

SummaryIn this and every chapter, the summary is related to theobjectives stated at the beginning of the chapter.

1. To define retailing, consider it from various perspectives,demonstrate its impact, and note its special character-istics. Retailing comprises the business activitiesinvolved in selling goods and services to consumersfor personal, family, or household use. It is the laststage in the distribution process. Today, retailing isat a fascinating crossroads, with many challengesahead.

Retailing may be viewed from multiple perspec-tives. It includes tangible and intangible items, does

not have to involve a store, and can be done bymanufacturers and othersas well as retailers.

Annual U.S. store sales exceed $4 trillion, withother forms of retailing accounting for hundreds ofbillions of dollars more. The worlds 100 largestretailers generate $2.4 trillion in yearly revenues.About 25 million people in the United States workfor retailers (including food and beverage places),which understates the number of those actuallyemployed in a retailing capacity. Retail firms receiveup to 40 cents or more of every sales dollar as com-pensation for operating costs, the functions per-formed, and the profits earned.



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Retailing encompasses all of the businessesand people involved in physically moving andtransferring ownership of goods and services fromproducer to consumer. In a distribution channel,retailers do valuable functions as the contact formanufacturers, wholesalers, and final consumers.They collect assortments from various suppliers

and offer them to customers. They communicatewith both customers and other channel members.They may ship, store, mark, advertise, and pre-payfor items. They complete transactions with cus-tomers and often provide customer services. Theymay offer multiple formats (multi-channel retailing)to facilitate shopping.

Retailers and their suppliers have complex rela-tionships because retailers serve in two capacities.They are part of a distribution channel aimed at thefinal consumer, and they are major customers forsuppliers. Channel relations are smoothest withexclusive distribution; they are most volatile with

intensive distribution. Selective distribution is away to balance sales goals and channel cooperation.

Retailing has several special characteristics. Theaverage sales transaction is small. Final consumersmake many unplanned purchases. Most customersvisit a store location.

2. To introduce the concept of strategic planning and applyit. A retail strategy is the overall plan guiding thefirm. It has six basic steps: defining the business,setting objectives, defining the customer market,developing an overall plan, enacting an integrated

strategy, and evaluating performance and makingmodifications. Target Stores strategy has been par-ticularly well designed and enacted.

3. To show why the retailing concept is the foundation of asuccessful business, with an emphasis on the total retailexperience, customer service, and relationship retailing.

The retailing concept should be understood andused by all retailers. It requires a firm to have a cus-tomer orientation, use a coordinated effort, and bevalue-driven and goal-oriented. Despite its straight-forward nature, many firms do not adhere to one ormore elements of the retailing concept.

The total retail experience consists of all the ele-ments in a retail offering that encourage or inhibitconsumers during their contact with a retailer. Someelements are controllable by the retailer; others arenot. Customer service includes identifiable, but some-times intangible, activities undertaken by a retailer inassociation with the basic goods and services sold. It

has an effect on the total retail experience. In relation-ship retailing, a firm seeks long-term bonds with cus-tomers rather than acting as if each sales transaction isa totally new encounter with them.

4. To indicate the focus and format of the text. Retailing maybe studied by using an institutional approach, a func-tional approach, and a strategic approach. Althoughall three approaches are covered in this book, ourfocus is on the strategic approach. The underlyingprinciple is that a retail firm needs to plan for andadapt to a complex, changing environment.

Key Terms

retailing (p. 4)

channel of distribution (p. 8)

sorting process (p. 8)

multi-channel retailing (p. 9)

exclusive distribution (p. 10)

intensive distribution (p. 10)

selective distribution (p. 11)

retail strategy (p. 12)

retailing concept (p. 15)

total retail experience (p. 16)

customer service (p. 18)

relationship retailing (p. 18)

Questions for Discussion

1. What is your favorite consumer electronics re-tailer? Discuss the criteria you have used in makingyour selection. What can a competing firm do tolure you away from your favorite firm? Apply youranswer to retailing in general.

2. What kinds of information do retailers communi-cate to customers? To suppliers?

3. What are the pros and cons of a firm such as NineWest having its own retail facilities and E-commerceWeb site (www.ninewest.com), as well as sellingthrough traditional retailers?

4. Why would one retailer seek to be part of anexclusive distribution channel while anotherseeks to be part of an intensive distributionchannel?

5. Describe how the special characteristics of retailingoffer unique opportunities and problems for giftstores.

6. What is the purpose of developing a formal retailstrategy? How could a strategic plan be used by alocal delicatessen?

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7. On the basis of the chapter description of TargetStores, present five suggestions that a new retailershould consider.

8. Explain the retailing concept. Apply it to a localDunkin Donuts store.

9. Define the term total retail experience. Thendescribe a recent retail situation in which yourexpectations were surpassed and state why.

10. Do you believe that customer service in retailing isimproving or declining? Why?

11. How could a small Web-only retailer engage inrelationship retailing?

12. What checklist item(s) in Figure 1-12 do you thinkwould be most difficult for Ikea, as the worldslargest furniture retailer, to address? Why?

Web-Based ExerciseVisit Clickz Stats Retailing (www.clickz.com/stats/sectors/retailing). Describe the site and give severalexamples of what a prospective retailer could learnfrom this site.

Note: Stop by our Web site(www.prenhall.com/bermanevans ) to experience anumber of highly interactive, appealing Web exercisesbased on actual company demonstrations and samplematerials related to retailing.

Chapter Endnotes1. Various company sources.

2. Estimated by the authors from data in 2005 GlobalPowers of Retailing, Stores (January 2005), specialsection.

3. Annual Benchmark Report for Retail and Food Services(Washington, DC: U.S. Census Bureau, March 2005);and retailer annual reports.

4. The material in this section is drawn from

www.target.com; www.targetcorp.com; TargetCorporation Annual Report 2005; Doug Desjardins,Simple Merchandising Sells Toys at Target, DSNRetailing Today (May 23, 2005), p. 20; Right on theMark: Target Excels in Apparel, DSN Retailing Today(April 11, 2005), pp. 12, 14; Laura Heller, TargetFine-Tuning the Right Formula for Success, DSNRetailing Today (April 11, 2005), p. 31; DougDesjardins, Cash from M&M Sale Pays Way to StockBuyback, Debt Reduction, DSN Retailing Today(April 11, 2005), pp. 3233; Target Merchandising,

DSN Retailing Today (April 11, 2005), pp. 38, 43; andLaura Heller, Innovative Thinking Permeates EntireBusiness Model, DSN Retailing Today (April 11,2005), pp. 40, 43.

5. IBM, Retailers Offering a One Size Fits AllShopping Experience Will Lose Customer Loyalty,www.marketwire.com (May 24, 2005).

6. Terri Murphy, What Customers Dont Tell You Can

Hurt, http://realtytimes.com/rtapages/20050530_customersatisfaction.htm (May 30, 2005).

7. Fact Sheet, www.buildabear.com/aboutUs/OurCompany/FactSheet.pdf (February 3, 2006).

8. Susan Reda, Saving Customer Service: Are RetailersUp to the Challenge? Stores (January 2001), p. 50.

9. Tenisha Mercer, Retailers Rein in Returns, www.detnews.com/2005/business/0502/03/C01-78357.htm(February 3, 2005); and Linda Stern, Rite of Return,Newsweek(January 10, 2005), p. 61.

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