Chapter 1 Introduction to the World of Retailing

Chapter 1 Introduction to the World of Retailing Copyright © 2009 by The Mc. Graw-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 1 -3

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? 1 -4

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. 1 -5

Examples of Retailers n Retailers: Kohl’s, Macy’s, Wendy’s, Amazon. com, Jiffy Lube, AMC Theaters, American Eagle Outfitter, Avon, J. Crew n 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 1 -6

Manufacturer’s Perspective The Four P’s of Marketing Retailers are part of the distributionchannel distribution channel Product Price Distribution Promotion 1 -7

Distribution Channel 1 -8

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

A Retailer’s Role in a Supply Chain n Retailers are the final business within a supply chain which links manufacturers to consumers. n A Supply Chain is a set of firms that make and deliver a given set of goods and services to the ultimate consumer. 1 -10

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 1 -11

Do Retailers Add Value? Example a box of crackers at a grocery store n costs $1 to manufacturer n 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? 1 -12

Why Not Get Rid of the Middlemen? Price to Retailer $1. 00 $. 85 $. 15 Manufacturer Distributor Vendor Price to Consumer $1. 20 Price to Distributor $2. 00 Wholesaler $. 70 Retailer Consumer 1 -13

Why Not Get Rid of the Middlemen? §Better services to customers §More efficient 1 -14

Music Industry Channel Composer Lyricist Publisher Record Company Artist Music Retailer Distributor 1 -15

Cost for CD Retailer $5. 00 Record 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 • 4 out of 5 CDs fail to make a profit • $300, 000 cost to prepare a CD for release • 30, 000 recording artists 15. 25 1 -16

How Retailers Add Value ■ Provide Assortment Buy other products at the same time ■ Break Bulk Buy it in quantities customers want ■ Hold Inventory Buy it at a convenient place when you want it ■ Offer Services See it before you buy; get credit; layaway Ryan Mc. Vay/Getty Images 1 -17

How Retailers Add Value The value of the product and service increases as the retailer performs functions. Bicycle can be bought on credit or put on layaway Bicycle is featured on floor display Bicycle is offered in convenient locations in quantities of one Bicycle is developed in several styles Bicycle is developed at manufacturer 1 -18

Examples: How Retailers Add Values n Bag. Borrower. Steal. com n jewelry and bag rental; Get (not buy, but borrow) exactly what you want n Home Depot n DIYer (Do-it-yourselfer); Learn how to do it yourself with in-store clinics and online workshops 1 -19

Social and Economic Significance of Retailing n Retail Sales: n Over $4. 1 trillion in annual U. S. sales in 2005 n Employment: n Employs over 24 million people in 2005 n One of the largest sectors for job growth in US n Social responsibility n Global player 1 -20

Social responsibility n Corporate social responsibility n 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 n Examples: Edun - a fair-trade fashion brand by the U 2 lead singer Bono n Starbucks: pays its farmers 42% more than the commodity price of Arabica coffee beans n Target: community giving programs (5% of income, $3 million a week) n Retail companies give away 1. 7% of their profits, compared with about 0. 9% for companies in other industries 1 -21

World’s 20 Largest Retailers in 2005 1 -22

Structure of Retailing and Distribution Channels around the World: The United States CHINA The nature of retailing and distribution channels in the U. S. is unique. n Has the greatest retail density n Has the greatest concentration of large retail firms n Large enough to operate their own warehouses, eliminating the need for wholesaling. n The combination of large stores and large firms result in a very efficient distribution system. 1 -23

Comparison of Distribution Channels around the World 1 -24

What have created these differences in distribution systems? Social & Political Objectives n China, India: To reduce unemployment by protecting small businesses n 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 n Large retail markets in US, India, China n Countries in EU – distribution channels and retail chains operate in a single country (no economy of scales to be achieved; trade barriers still exist) 1 -25

Opportunities in Retailing: Management opportunities ■ People with a wide range of skills and interests needed because retailers’ functions include n Finance n Purchase n Accounting n Management information system (MIS) n Supply management including warehouse and distribution management n Design and new product development ■ Financially rewarding n 5 -year salary of buyers: $50, 000 - $60, 000 n 5 -year salary of store managers: $120, 000 - $160, 000 1 -26

Nature of Retail Industry is Changing To Today’s Retailer Mom and Pop Store 1 -27

Retailers are a Business Like Manufacturers Real Estate Finance Store Design Promotion/Advertising MIS Loss Prevention Operations Human Resources The Mc. Graw-Hill Companies, Inc. /Andrew Resek, photographer 1 -28

Retailing is a High Tech Industry n Selling Merchandise through the Internet n Using Internet to manage supply chains n Analyze POS data to tailor assortments to stores n Computer systems for merchandise planning and tracking 1 -29

Opportunities in Retailing: Entrepreneurial opportunities Wal-Mart: Sam Walton ■ Retailing provides opportunities for people who want to start their own business ■ Some of the world’s richest people are retailing entrepreneurs ■ Examples of retailing entrepreneurs Sam Walton (Wal-Mart) Jeff Bezos (Amazon. com) Ingvar Kamprad (IKEA) Anita Roddick (the Body Shop) IKEA: Ingvar Kamprad 1 -30

Career Opportunities in Retailing Start Your Own Business List of Retail Entrepreneurs on Forbes 400 Richest Americans n n n n n 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 (99 Cent Only) 1 -31

Retail Management Decision Process 1 -32

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 1 -33

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 1 -34

Retail Strategy ■ A retail strategy should identify n the target market n the product and service mix n a long-term comparative advantage 1 -35

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

JC Penney’s Strategic Evolution(2) n Focus on department store format and soft goods develop electronic retail channel n Mid-market, mall based department store, between Wal-Mart/Target and Macy’s/Dillards n Competition from Target, Kohl’s n Centralization to reduce cost, increase responsiveness centralized buying, warehouse delivery n Off the mall stores to increase customer convenience n Improving store atmospherics n Upgrading merchandise offering (e. g. , Sephora, American Living by Polo Ralph Lauren) 1 -37

Wal-Mart’s Strategic Evolution n Small Town - Discount Store selling hard goods and soft goods n limited service, efficient distribution n Enter suburban markets n Warehouse Clubs (Sam’s) n Supercenters n International Expansion n Supermarkets, neighborhood markets 1 -38

Sears’ Strategic Evolution n Large number of merchandise categories -appliances, hardware, apparel n Malls evolved into places for buying soft goods, hard goods sold at category killers n The Softer Side of Sears n Refocused on value -- Testing carts in stores n Acquired Lands’ End n Acquired by Kmart 1 -39

Whole Foods Implementation Strategy - organic and natural foods supermarket chain Assortment beyond organic/natural foods Private labels - Whole Food™, 360 Day Value™ Love, trust, and employee empowerment Equality in compensation 1 -40

Decision Variables for Retailers Customer Service Store Design and Display Retail Merchandise Assortment Strategy Pricing Location Communication Mix 1 -41

Wal-Mart’s Retail Mix Customer Service Store Design And Display Location Retail Strategy Communication Mix Merchandise Assortment Pricing 1 -42

Wal-Mart’s Retail Mix Location Strategy Free-standing Stores Customer Service Store Display And Design Communication Mix Merchandise Assortment Pricing 1 -43

Wal-Mart’s Retail Mix Assortment Strategy Customer Service Location Large Number of Categories Store Design and Display Communication Mix Pricing Few Items in Each Category 1 -44

Wal-Mart’s Retail Mix Pricing Strategy Location Customer Service Merchandise Assortment Store Design and Display Communication Mix Low, EDLP 1 -45

Wal-Mart’s Retail Mix Customer Service Communication Mix Store Design and Display Location Merchandise Assortment Pricing TV and Newspaper Insert Ads 1 -46

Wal-Mart’s Retail Mix Store Design and Display Customer Service Basic, Special Displays for Products Location Merchandise Assortments Communication Mix Pricing 1 -47

Wal-Mart’s Retail Mix Customer Service Limited Location Merchandise Assortment Store Design and Display Pricing Communication Mix 1 -48

Claire’s Retail Mix Customer Service Location Merchandise Store Design and Display Retail Strategy Communication Mix Assortment Pricing 1 -49

Claire’s Retail Mix Location Strategy Enclosed malls Customer Service Store Display Merchandise And Design Assortment Communication Mix Pricing 1 -50

Claire’s Retail Mix Assortment Strategy Customer Service Location Jewelry, accessories and cosmetics for tweens and teens Store Design and Display Communication Mix Pricing 1 -51

Claire’s Retail Mix Pricing Strategy Location Customer Service Merchandise Assortment Store Design and Display Communication Mix Modest with Sales 1 -52

Claire’s Retail Mix Customer Service Communication Mix Location Store Design And Display Merchandise Assortment Pricing TV and Magazine Ads 1 -53

Claire’s Retail Mix Store Design and Display Customer Service Bright, fashionable and fun Location Merchandise Assortments boutique layout Communication Mix Pricing 1 -54

Claire’s Retail Mix Customer Service Modest Location Merchandise Assortment Store Design and Display Pricing Communication Mix 1 -55

Macy’s Retail Mix Customer Service Location Merchandise Store Design and Display Retail Strategy Communication Mix Assortment Pricing 1 -56

Macy’s Retail Mix Location Strategy Enclosed Malls Customer Service Store Display Merchandise And Design Assortment Communication Mix Pricing 1 -57

Macy’s Retail Mix Assortment Strategy Customer Service Location Many Items in Apparel Store Design and Display and Soft Home Communication Mix Pricing 1 -58

Macy’s Retail Mix Pricing Strategy Location Customer Service Merchandise Assortment Store Design and Display Communication Mix Moderate with Frequent Sales 1 -59

Macy’s Retail Mix Customer Service Communication Mix Location Store Design And Display Merchandise Assortment Pricing TV, Newspaper Ads and Special Events 1 -60

Macy’s Retail Mix Store Design and Display Customer Service Racetrack with Displays Location Merchandise Assortments Communication Mix Pricing 1 -61

Macy’s Retail Mix Customer Service Modest Location Merchandise Assortment Store Design and Display Pricing Communication Mix 1 -62

Target’s Retail Mix Customer Service Location Merchandise Store Design and Display Retail Strategy Communication Mix Assortment Pricing 1 -63

Target’s Retail Mix Location Strategy Free-standing Stores Customer Service Store Display Merchandise And Design Assortment Communication Mix Pricing 1 -64

Target’s Retail Mix Assortment Strategy Customer Service Location Large Number of Categories Store Design and Display Private Labels Few Items in Each Category Communication Mix Pricing 1 -65

Target’s Retail Mix Pricing Strategy Location Customer Service Merchandise Assortment Store Design and Display Communication Mix Low to Modest 1 -66

Target’s Retail Mix Customer Service Communication Mix Location Store Design And Display ent Merchandise Assortm Pricing TV and Newspaper Insert Ads 1 -67

Target’s Retail Mix Store Design and Display Customer Service Location Colorful, wide aisles displays Merchandise Assortments for products with a grid layout Communication Mix Pricing 1 -68

Target’s Retail Mix Customer Service Limited Location Merchandise Assortment Store Design and Display Pricing Communication Mix 1 -69

Ethical Situations for a Retail Manager n Should a retailer sell merchandise that they suspect utilized child labor? n Should it advertise that its prices are the lowest in an area even though some items are not? n Should a buyer accept an expensive gift from a vendor? n Should salespeople use high-pressure sales when they know the product is not the best for the customer’s needs? n Should a retailer give preference to minorities when making a promotion decision? n Should a retailer treat some customers better than others? 1 -70

Checklist for Making Ethical Decisions 1 -71

You are Faced with an Ethical Decision: What Can You Do? n Ignore your personal values and do what your company asks you to do – you will probably feel dissatisfied with your job. n Take a stand tell your employer what you think. Work to change the policies. n Refuse to compromise your principles – you could lose your job! 1 -72

Careers in Retailing n Career Opportunities n Store Management n Merchandise Management n Corporate Staff 1 -73

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 Mc. Graw-Hill Companies, Inc. /Andrew Resek, photographer 1 -74

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 1 -75

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 1 -76