Types of Retailers

McGraw-Hill/IrwinRetailing Management, 7/e © 2008 by The McGraw-Hill Companies, All rights reserved.

Types of Retailers

Chapter 2

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Questions

■ What trends shape today’s retailers?

■ What are the different types of retailers?■ How do retailers differ in terms of how they meet the

needs of their customers?■ How do service retailers differ from merchandise

retailers?■ What are the types of ownership for retail firms?

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General Trends in Retailing

■ New Types of Retailers■ Increased Concentration■ Globalization■ Growth In Services Retailer■ Demise of Pure Electronic Retailers (Webvan,

eToys, etc) ■ Growth in Use of Multi-Channel Retailing by

Traditional Retailers■ Increase Use of Technology to Reduce Cost;

Increase Value Delivered

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Types of Retailers

■ Retailers Use Different Retail Mixes

-merchandise: variety (breadth) / assortment (depth)

-services

-store design, visual merchandising

-location

-pricing■ Infinite Variations■ Some combination of retail mixes

satisfy the needs of significant segments and persist over time.

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New Types of Retailers

■ Category Specialists-PETsMART -Bed, Bath and Beyond

■ CarMax and Auto Nation

■ Netflix, eBay, Priceline, Travelocity

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Bag Borrow or Steal

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Different Retail Mixes

■ Merchandise: variety (breadth)

■ Assortment (depth)

■ Services

■ Store design, visual merchandising

■ Location

■ Pricing

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Types of Merchandise Retailers

Mom and Pop StoresConvenience Stores

SupermarketsSupercenters

Department Stores

Specialty Stores

Discount Stores

Category Specialists

Off-Price Retailers

Warehouse Clubs

Value Retailers

Food Retailers General Merchandise Retailers

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NAICS Codes for Retailers

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Merchandise Offering

Variety (breadth of merchandise): wide vs. narrow

- The number of merchandise categories

Assortment (depth of merchandise): deep vs. shallow

-the number of items in a category (SKUs)

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Variety and Assortment of Kayaks in Different Retail Outlets

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Services offered

Retailers differ in the services they offer customers

EMS offers assistance in selecting the appropriate kayak and repairing them

VS Outdoorplay.com and Wal-Mart: doesn’t provide any

services

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Illustration of Variety and Assortment

Lady Foot Locker Sports Authority

Active SKUs: 44 N/A

Classics SKUs: 44 N/A

Converse SKUs: 25 N/A

Elite Running SKUs: 22 N/A

Fitness N/A SKUs: 1

Running SKUs: 44 SKUs: 39

Trail Running N/A SKUs: 7

Training SKUs: 22 SKUs: 2

Walking SKUs: 11 SKUs: 12

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Variety and Assortment of Coffee Makers

Makers Less Than 8 Cups

Makers Greater Than 10 Cups

Specialty Makers

Linens N’ Things

Brands Black and DeckerCuisinart, Mr. Coffee, Black and

Decker, Faberware, Braun, Hamilton Beach, Krups, Sunbeam

Braun, Keurig, Breville, Krups

# SKUs 2 SKUs 19 SKUs 7 SKUs

Price Range

$19.99-19.99 $29.99-199.99 $59.99-249.99

Average Price

$19.99 $83.67 $157.13

Target

BrandsBlack and Decker, Mr.

Coffee

Mr. Coffee, Black and Decker, Hamilton Beach, Delonghi,

Kitchen Aid, Bunn, Chefmate

Keurig, Mr. Coffee, Delonghi, Philips

# SKUs 4 SKUs 16 SKUs 5 SKUs

Price Range

$10.48-$29.99 $9.49-$119 $29.99-99.99

Average Price

$22.61 $51.83 $74.99

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Variety and Assortment of Bicycle

Mountain Road Hybrid/Cross

BMX Comfort/Cruisers

Training/Child

Wal-Mart Pacific, Dynacraft, Huffy, Kent

International, Pacific Cycle

Pacific, Kent International,

Huffy

_______ Currie Tech., Dumar,

Dynacraft, Huffy, Kent International, Pacific

Cycle

_______ Dumar, Dynacraft, Huffy,

Kent International, MGA, Pacific Cycle, Radio

Flyer

SKUs 23 SKUs 15 SKUs _____ 22 SKUs _____ 53 SKUs

Price $40-$250 $130-$1500 _____ $40-$250 _____ $130-$1500

Gator Cycle Trek, Gary Fisher

Trek, LeMond Trek Trek, Gary Fisher

Trek

SKUs 23 SKUs 18 SKUs 12 SKUs 4 SKUs 5 SKUs

Price $290-$5,700 $770-$5,800 $360-$1300 $360-$590 $160-$270

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In-Store Digital Camera Comparison ShoppingBest Buy vs. Wal-Mart

Standard(Snapshooter)

Sleek & Slim (Trendsetter)

Advanced(Serious Amateur)

Best Buy Canon, Kodak, HP, Nikon, Olympus,

Sony

Canon, Casio, Fuji, HP, Nikon, Olympus,

Sony

Canon, Kodak, Panasonic, Sony

SKUs 10 11 14

Price Range

$99.99 - $199.99 $1469.99 - $349.99 $179.99 - $549.99

Wal-Mart Canon, Fuji, Kodak, Samsung, Pentax,

Polaroid

Canon, Fuji, Sanyo, Samsung, Kodak, Olympus, Norcent,

Pentax

Canon, Fuji, Kodak, Panasonic, Sony

SKUs 10 20 7

Price Range

$89.98 - $299.96 $79.88 - $308.77 $198.32 - $549.84

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SKUs for Digital CamerasWal-Mart Best Buy

ModelMegapixel

s Price ModelMegapixel

s Price

Snapshooter Standard

Canon Powershot SX100 8 299.96

Canon Powershot A560 7 149.99

Fujifilm FinePix Z10 7 139.84 HP M53BNDL 6 179.99

Fujifilm FinePix Z5 6 162HP Photosmart

M547 6 99.99

Kodak C813 8 119.77Kodak Easyshare

C613 7 99.99

Kodak Easyshare C613 6 89.88

Kodak Easyshare C613P 6 99.99

Kodak Easyshare V1003 10 149.34

Kodak Easyshare M753 7 129.99

Pentax Optio M30 7 169.84 Nikon CoolPix L11 6 109.99

Polaroid i733LP 7 99.88 Olympus FE-340 8 199.99

Samsung S730 7 99.77Sony Cybershot

DSC-S700 7 149.99

Samsung S850 8 129.77Sony Cybershot

DSC-W55 7 179.99

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Prices and the cost of offering breath and depth of merchandise and services

Stocking a deep and broad assortment (like EMS) is costly for retailers.

Many SKUs

Inventory Investment Cost

Because the retailer must have backup stock for each SKU in addition to holding the inventory

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Sales and growth rate for retail sectors

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Food Retailers

■ Supermarkets■ Supercenters■ Warehouse

Clubs■ Convenience

Stores

Channel preference for food shopping channel where grocery purchasers do most of their food shopping

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Characteristics of Food Retailers

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Types of Food Retailers

Conventional Supermarket

Limited Assortment

Supermarket

Supercenter Warehouse Club

Convenience Store

Percentage Food 70-80 80-90 30-40 60 90

Size (000 sq ft) 20-30 7-10 150-220 100-150 2-3

SKUs (000) 20-40 1-1.5 100-150 20 2-3

Variety average narrow broad broad narrow

Assortment average shallow deep shallow shallow

Ambiance pleasant minimal average minimal average

Service modest limited limited limited limited

# of checkout lines 6-10 2-4 20-30 10-15 1-2

Prices average lowest low low high

Gross Margin % 20-22 10-12 15-18 12-15 25-30

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Supermarkets

■ Conventional supermarkets 30,000 SKU

■ Limited assortment supermarkets (extreme value food retailers)

2000 SKU Offer one or two brands and sizes Designed to maximize efficiency and

reduce costs Offer merchandise at 40-60% lower

prices than conventional supermarkets Save-A-Lot, ALDI (German’s Wal-Mart)

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ALDI: German’s Wal-Mart

ALDI provides quality merchandise at low prices by reducing its assortment in order to control store operating expenses

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ALDI’s Strategy

4,100 stores in Germany and 6,600 worldwide, including 800 stores in 26 US states

Cheap.. Only two brands of toilet paper and one brand of pickles

STRATEGY:Stores sell less productsALDI exclusive labelHigh quality of products at cheaper prices

HOW?Strong control over quality and priceSimplify shipping and handlingReduce labor costs by keeping limited store staff, etc.

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Save-A-Lot

Save-A-Lot’s limited assortment formatmeans that stores carry the mostfrequently purchased grocery items inthe most popular size and variety

The company carries high qualityexclusive brands – many produced by the same manufacturers of leading name brands – and an assortment of nationally branded items.

This allows Save-A-Lot to offer savings of up to 40% compared to conventional grocery stores – without asking shoppers to sacrifice quality.

Used by permission of Save-A-Lot

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Trends in Supermarket Retailing

Competition from Discount Stores

Changing Consumption Patterns

Efficient

Distribution Lower Costs Lower Prices

Time Pressure Eating Out More Meal Solutions

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Conventional Supermarket Survival Pack

Chef-crafted meals on the go at EatZi’s

■ Emphasize Fresh Perishables Wegmans

■ Target health conscious and ethnic consumers

■ Provide a better in-store experience

■ Offer more private label brands

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Supercenters and Warehouse Clubs

■ The fastest growing retail category

■ Large stores (150,000 – 220,000 square feet) that combine a supermarket with a full-line discount store

■ One-stop shopping experience

Supercenters

■ Offer a limited and irregular assortment of food and general merchandise with little service at low prices

■ Use low-locations, inexpensive store design, little customer service

■ Low inventory holding costs by carrying a limited assortment of fast selling items

Warehouse Clubs

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Convenience Store

■ Tailors assortments to local market■ Makes more convenient to shop■ Offers fresh, healthy food■ Fast, casual restaurants■ Financial services available■ Opening smaller stores closer to consumers (like

airports)

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Types of General Merchandise Retailers

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

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Characteristics of General Merchandise Retailers

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Issues in Department Store Retailing

■ Competition

-Discount Stores on Price

-Specialty Stores on Service, Depth of Assortment

■ Lower Cost by Reducing Services (?)

-Centralized Cash Wraps■ More Sales (?)

-Customers Wait for Sale■ Focus on Apparel and Soft Home■ Develop Private Labels and

Exclusive Brands

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Three Tiers of Department Stores

Rob Melnychuk/Getty Images

■ First Tier: Upscale, high fashion chains with exclusive designer merchandise and excellent customer serviceNordstrom, Neiman Marcus, Saks

■ Second Tier: Retailers sell more modestly priced merchandise with less customer service

Macy’s

■ Third Tier: Value oriented caters to more price conscious customerJCPenney, Sears, Kohl’s

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Department Stores:What To Do With an Eroding Market

Royalty-Free/CORBIS

To deal with an eroding market

Department stores are:

■ attempting to increase the amount of exclusive merchandise they sell

■ undertaking marketing campaigns to develop strong images for their stores and brands

■ building better relationships with their key customers

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Issues in Discount Store Retailing

■ Only Big Left

Wal-Mart, Target

■ Wal-Mart’s Dominance

■ Differentiate Strategy

Wal-Mart = Low Price and Good value

Target = More Fashionable Apparel

■ Competition from Category Specialists

Toys-R-Us, Circuit City, Sports Authority

McGraw-Hill Companies, Inc./Gary He,

photographer

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Issues in Specialty Store Retailing

■ Mall-Based Apparel Retailers

■ Decline in Mall Shopping and Apparel Sales-Lack of New Fashions

-Less Interest in Fashion

-Increased Price Consciousness

■ Lifestyle Formats –

Abercrombie and Fitch

Hot Topics

McGraw-Hill Companies, Inc./Andrew Resek, Photographer

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Specialty Store Retailers

McGraw-Hill Companies, Inc./Andrew Resek, Photographer

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Issues in Drug Store Retailing

■ Consolidation – Walgreens, CVS, Rite-Aid

■ Competition from Supermarkets, discount Stores and mail-in orders

■ Evolution to a New Format-Stand Alone Sites with Drive Thru

Windows-offering more frequent purchase food

items

■ Improved systems provide personalized service in the pharmacy

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Category Specialists

■ Deep and Narrow Assortments Destination Stores

■ Category killers■ Low Price and Service■ Wholesaling to

Business Customers and Retailing to Consumers

■ Incredible GrowthBass Pro Shops

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Category Specialists

Sephora,France’s leading perfume/cosmetic chainLVMH’s division

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Category Specialists: Home Improvement Centers

Home Depot and Lowes act as both:

Retailer and Wholesaler

Consumer Business

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Home Improvement Centers

■ Displayed in a warehouse atmosphere

■ Customer Service: How to select and how to use merchandise

■ Competition focuses on price, effort to differentiate and services provided

Ryan McVay/Getty Images

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Issues in Extreme Value Retailing

■ Focuses on Lower Income Consumers■ Names mostly imply good value not $1 price points■ Low Cost Location■ Limited Services■ One of the Fastest Growing Retail Segments

Dollar Tree Family DollarDollar General 99 Cents Only Store

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Off-Price Retailers

■ Close-out retailers■ Offer an inconsistent assortment of brand name

merchandise at low pricesTJX companies (T.J. Maxx, Marshalls. HomeGoods)Ross Stores, Burlington Coat factory, Big Lots, Tuesday

Morning

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Types of Non-store Retailers

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Electronic Retailing

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

■ History of frenzied investments and false predictions of retail dominance

■ Primarily used by traditional retailers to compliment store and catalog offerings

■ Exclusive e-tailers target small and dispersed niche markets

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What are Amazon and eBay?

■ Amazon.com – Merchandise to consumers. Provides website development and fulfillment services to other retailers

■ eBay – Acts as a mall or other shopping center providing a “place” for buyers and sellers to meet

Don Farrall/Getty Images

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Issues in Catalog Retailing

■ Low Start Up Cost■ Evolution of Multi-Channel Offering■ Hard to compete with large well established firms■ Increasing Mail Costs■ Clutter from other Catalogs■ General merchandise catalogs like JC Penney■ Specialty Catalogs like Victoria Secret

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Issues in Direct Selling

■ Completely bypasses retailers and wholesalers Manufacturers set up their own channels to sell their products

directly to consumers

■ Party plan system: merchandise is demonstrated in a party atmosphere

■ Multi-level network: Master distributors sell to distributors who sell merchandise

■ Pyramid schemes: Firm sells to other distributors and little if any merchandise goes to end users

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Issues in Television Home Shopping

■ Consumers watch cable stations, infomercials or direct response ads

■ Few consumers watch regularly■ Most purchases made by small proportion of viewers■ Customers can’t examine merchandise■ Customers must wait for merchandise to come on■ Sells predominately jewelry, apparel, cosmetics,

kitchenware, and exercise equipment

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Issues in Vending Machine Retailing

■ Automatic Merchandising About $25 billion worth of convenience goods are sold to Americans through

4.7 million vending machines■ Sales growth has been declining due to higher prices and healthier

eating habits■ New technology may help sales growth■ Trend of placing machines in captive consumer locations

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Services vs. Merchandise Retailers

■ Intangibility Problems in Evaluating Service Quality Performance of Service Provider

■ Simultaneous Production and Delivery Importance of Service Provider

■ Perishability No Inventory, Must Fill Capacity

■ Inconsistency of the Offering Importance of HR Management

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Type of Service Service Retail Firms

Airlines American, Delta, British Airways, Singapore Airways

Automobile maint/repair Jiffy Lube, Midas, AAMCO

Automobile rental Hertz, Avis, Budget, Alamo

Banks Citibank, NCNB, Bank of America

Child care centers Kindercare, Gymboree

Credit cards American Express, VISA, Mastercard

Education University of Florida, Babson College

Entertainment parks Disney, Universal Studios, Six Flags

Express package delivery Federal Express, UPS, US Postal Service

Financial services Merrill Lynch, Dean Witter

Fitness Jazzercise, Bally’s, Gold’s Gym

Health Care Humana, HCA

Home maintenance Chemlawn, MiniMaid, Roto-Rooter

Examples of Service Retailers

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Examples of Service Retailers

Type of Service Service Retail Firms

Hotels and motels Hyatt, Sheraton, Marriott, Days Inn

Income tax preparation H & R Block

Insurance Allstate, State Farm

Internet access/Elec info. American On-Line, CompuServe

Movie theaters AMC, Loews/Sony, Universal

Real estate Century 21, Coldwell Banker

Restaurants TGI Friday’s, Wendy’s, Pizza Hut

Truck rentals U-Haul, Ryder

Weight loss Weight Watchers, Jenny Craig

Video rental Blockbuster, Hollywood Video

Vision centers Lenscrafter, Pearle

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Merchandise/Service Continuum

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Types of Retail Ownership

(c) Brand X Pictures/PunchStock

■ Independent, Single Store Establishments

Wholesale-sponsored voluntary group

■ Corporate Retail Chains■ Franchises

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Retailers Using Franchise Business Model

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Franchising

The McGraw-Hill Companies, Inc./Jill Braaten, photographer

■ 30 – 40% of US Retail Sales■ Franchisee Pays Fixed Fee

Plus % of Sales■ Franchisee Implements

Program■ Why is this Ownership

Format Efficient?

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Reasons for Franchising Growth

Technological advances

Profitable utilization of capital resources

Attainment of the “American Dream”

Demographic expansion

Product/service consistency

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Reasons for Franchising Failure

Inept management

Fraudulent activities

Market saturation

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Franchisor Positions in the Marketing Channel

Manufacturer - retailer

Manufacturer - wholesaler

Wholesaler - retailer

Service sponsor - retailer

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Franchisor Benefits

Continuous marketContinuous market

Market informationMarket information

MoneyMoney

Sales of productsSales of products

Rental and lease feesRental and lease fees

License fees License fees

Management feesManagement fees

Royalty fees

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Franchisee Benefits

Initial Services

Market survey and site selection, facility design and layout, lease negotiation advice, financing advice, operating manuals, management training programs, and employee training.

Continuous Services

Field supervision, merchandising and promotional materials, management and employee retraining, quality inspection, national advertising, centralized purchasing, market data and guidance, auditing and record keeping, management reports, and group insurance plans.

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Franchisor Advantages/Disadvantages

Advantages

Rapid expansion, highly motivated franchisees do a good job, additional profits by selling franchisees products and services.

Disadvantages

Company-owned units may be more profitable, less control then independent retailers over advertising, pricing, personnel practices, etc.

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Franchisee Advantages/Disadvantages

Advantages

Established/proven product/service, business and technical assistance, and reduction in risk.

Disadvantages

Loss of control since only semi-independent, franchisee outlets may compete with corporate-owned outlets, and high royalties, fees, costs on equipment, supplies, merchandise, rental/lease rates and mandatory participation in promotional and support services.

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Franchising Trends for the New Millennium

Sustained growth

Enduring plus un-imagined applications

International expansion

Increasing tensions

Greater emphasis on financial returns